William White - Global Macro Series - November 2nd, 2022

[00:00:00] William

These systems always break down and the lesson is: be prepared. 

When you think about 2009, whether in Britain, or in Europe, or the United States, people were totally unprepared for what happened. Did you have adequate deposit insurance? Were you playing war games between the Central Bank and the Treasury about who does what, when? All of this kind of stuff, just in many countries, was not there.

Do you have adequate debt resolution procedures? In all sorts of studies, the OECD, the BIS, the G 30, we don’t have adequate procedures for resolving debt problems, either at the corporate level, or the household level, or the sovereign level. Be prepared, we’re not. 

0:00:53 Intro

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Here’s your host veteran hedge fund manager, Niels Kaastrup-Larsen. 

[00:01:48] Niels

Welcome, and welcome back to another conversation in our series of episodes that focuses on markets and investing from a global macro perspective. This is a series that I not only find incredibly interesting, as well as intellectually challenging, but also very important given where we are in the global economy and the geopolitical cycle.

We want to dig deep into the minds of some of the most prominent experts to help us better understand what this new global macro driven world may look like. We want to explore their perspectives on a host of game changing issues and hopefully dig out nuances in their work through meaningful conversations.

Please enjoy today’s episode hosted by Alan Dunne. 

[00:02:31] Alan

Thanks very much for that introduction, Niels. Today I’m delighted to be joined by a really great guest. Today we have the economist William White joining us. Bill has worked as an economist, a policy advisor, and a policy maker in a career spanning multiple decades.

He’s probably best known for his time at the Bank for International Settlements in the 1990s and the 2000s, where he was head of the Monterey and Economics Department and oversaw the publication of the widely read and prestigious BIS annual report. 

Bill, it’s a great pleasure to have you join us today from Toronto. How is it all, on your side? 

[00:03:09] William

Oh, Just fine actually. It’s a pleasure to be here Alan. 

[00:03:12] Alan

As I say Bill, you’ve had an extraordinary career in economic circles spanning multiple decades. If you could, would you please give us a brief introduction to your career and the highlights before we delve into the conversation?

[00:03:30] William

I come from a very small town in Northern Ontario with only 10,000 people. The defining moment was when I decided that I had to leave town to really do stuff that was of interest to me. I got a scholarship and I went to the University of Windsor, in Canada. Then I got another scholarship and moved to Britain.

I did a PhD at the University of Manchester, and then I had three years at the Bank of England. I went back to Canada, and I was 22 years with them. Then went to the Bank for International Settlements, as you’ve noted, in Basel. I was 14 years there, and then I had 10 years at the OECD. So I’ve retired three times, but it doesn’t stick. I’m continuing to be very active in the economic scene. 

[00:04:28] Alan

Yeah, I was going to say by the looks of it, you continue to be pretty active in terms of writing and speaking. Clearly you haven’t retired yet. Bill, you probably came to prominence with me about 10 years ago when you wrote a paper about Ultra Easy Monetary Policy and the Law of Unintended Consequences. It was all about exactly that; everybody in the economic world was focused on QE and the potential benefit that it may bring. This paper looked at maybe some of the unforeseen potential consequences that may arise from that type of policy.

Can you give us a bit of a sense on what was your thinking? What prompted you to write that paper? I guess looking back now, a decade on, do you feel a lot of that played out, or it played out to an extent, particularly when you look at things like we’re seeing now in the gilts market in the UK, and very notable dislocations as some of these low rates are being unwound. 

[00:05:32] William

Yeah. The reason why I wrote the paper, I think it was around 2012 or 2013 (something like that), was that what I was observing was that the central banks were basically conducting the same monetary policy after the crisis that they had been conducting before. The worries that the BIS had expressed, and I personally had expressed prior to the crisis, was that monetary policy was too easy and that it was creating all sorts of problems in addition to the potential for raising inflation.

I don’t actually use these words in the paper, but I’ve subsequently said that the monetary policy that was followed before the crisis, and indeed for a decade after the crisis, was one, unnecessary; two, ineffective; and three, dangerous. I tried, in the paper, to really justify all three of those things.

Certainly before the crisis, one of the things that worried me and worried my colleagues was that central banks were leaning against a level of inflation that they felt was too low. When you think about it, it was odd the way that had morphed from the earlier concerns, which was inflation was too high, you had to get it down.

Then all of a sudden the starting point was different. They pulled out all the big guns in order to try to offset deflation because they thought that it was dangerous. One of the points that I made in my paper was that such research as I had seen indicated that, generally speaking, deflation was not dangerous.

Deflation was generally, historically a byproduct of positive productivity increases. The prices wanted to go down. That was the natural thing to happen, was that the prices should go down. The authorities basically said they didn’t want that to happen. So, they leaned against it with this ultra easy monetary policy.

Then I got into the second and third aspects of it. One, it would be ineffective because in the fullness of time, as you start using monetary policy over and over again to stimulate the economy, the way you do it is by inducing people to take on still more debts. In the fullness of time that debt itself becomes an impediment to more spending. The thrust of monetary policy becomes more and more ineffective. 

The third thing, and I think this went really to the heart of the paper – the unintended consequences, was that we felt, prior to the crisis, that the policies that were being followed were positively dangerous because of these unintended consequences. One of them, I guess it’s just another way of looking at the debt problem, is that as the debt accumulates, and the debt levels get higher and higher as indeed they were as a ratio of GDP, that the system becomes inherently less stable. So, you can think about corporations that have got very high debt levels.

In all states of nature, in good times, the corporations (let’s say, that are heavily indebted) have got good revenues, but the debt service charge, because the interest rates will go up, will expose them. If you have bad times, where the revenues are not coming in, they’re equally exposed. 

So, too high debt levels is not a good idea. Then you can go on and on about the other threats to financial stability: the misallocation of resources, generally speaking, these are things that, in the end, will prove to be very dangerous and culminate in crisis, which indeed they did in 2008 and 2009.

My worry later on, as I wrote the paper, was that still more of the same of what had produced a crisis was likely to produce an even greater crisis. That was really the refrain that I think I was repeating over and over again from 2013 on: that we could be heading up to a situation that was even worse than 2008.

I guess the jury’s still out on that, but it is certainly not implausible. 

[00:10:32] Alan

We obviously haven’t had that yet, but we’ve had, I guess since then, we had the taper tantrum. You had the challenges in the US repo and treasury markets in 2018, and then 2020. Obviously we had dislocations related to Covid and the Fed had to step in again with even more aggressive policies.

We’ve had a tightening cycle this time, and so far it’s been orderly except for we’ve started to see cracks, as I mentioned, say with respect to the gilt market. I guess as you say, it’s an open question. It could still arise. When you look back, I bet the point about inflation, and a lot of people said the QE would lead to inflation, and it didn’t.

Now we’ve had inflation. Again, I suppose with all of these things it’s very hard to disentangle the different effects. Do you think that the QE prolonged period was a contributing factor, or was it more the supply side challenges we’ve had recently, or more the fiscal stimulus we had in the last couple years that has driven the inflation rates?

[00:11:41] William

The question is, what’s caused the rebound in inflation? I think it is very complicated. There are elements on the demand side, on the supply side but as Milton Freedman once famously said, “Inflation is always an everywhere monetary phenomenon.”

In the longer run that’s true. In that sort of sense that the central banks are ultimately responsible for inflation, I would say they bear a significant amount of the blame for this. You just have to look at what they did, which was extraordinary, even by the standards of 2008. You look at the implications, for example, for money supply for M3, where you were running in sort of growth rates (I think in the US), between the end of 2019 and May of 2022, M3 in the US grew 42%. It grew 22% in the UK, 21% in the Euro Zone. 

You look at numbers like that and you really have to sense that somehow this was too much of a good thing. I worry that what they have been doing, it could well lead to inflation getting out of control.

I think there’s little doubt that when I look at central banks behavior, over the course of the last 20 or 30 years, to me it seems what they have fundamentally misunderstood is the importance of supply side shocks. I guess I would contend (and I think I do it in that paper that you referred to, but certainly in many others), I would contend, and the BIS has long contended, that the deflationary pressures that we have faced, really, since the turn of the millennium, owe as much to positive supply side factors as anything else. So you had China, and India, and Eastern Europe, all coming back into the global trading system, essentially adding billions of new workers to the tradable part of the global economy.

Then you have the demographics in the Western countries, which are very favorable, the baby boomers coming through, et cetera. These positive supply side shocks were basically trying to drive prices down, and failing to see that (as I said earlier on), the central banks leaned against it because they felt it was dangerous and I thought it was not.

They leaned against it. They’ve created many of these problems that we currently have. They’ve made the same kind of mistakes in the course of the pandemic. In the first instance, suggesting that the supply side effects would be less than the demand side effects and the negative effects, so that we didn’t worry about inflation.

Of course, the supply side effects have proved to be much larger, longer lasting than they’d expected. The decision, or at least the assertion in the United States and I think elsewhere, that the supply shocks would be transitory and that you needn’t worry about them. I think it really has allowed a momentum to build up on this sort of wage/price side that is now going to be harder to resist than previously.

I worry too that the central banks are not underestimating both the diversity and the magnitude of the supply side shocks still to come. I could give you a list here of six or seven different things that one wants to worry about, or I think you should worry about; the pre pandemic resource misallocations.

I talked about that earlier on as one of the unwanted side effects that you actually have negative effects on your supply potential. That is still going to be playing out as we go forward. If the tough times come and the bankruptcies rise, then we’ll start to see the implications of those pre pandemic resource misallocations.

I think that there are forces there that will cause prices to go up. We’ve got all the post pandemic history stuff that’s still playing out. When you think about China, and the Zero Covid policy, and are there reliable supply chains? As long as it continues, the answer is that there aren’t.

You’re looking at things like long Covid, which has reduced the part rate in both the US and the UK, as far as I know. We’ve got population aging. Charles Goodhart and his colleague Pradhan have written a whole book about that, that the demographics was pushing prices down, and now the change in demographics, aging, and the lower participation rate is pushing everything in the opposite direction.

We’ve got climate change, and whether you look at adaptation or mitigation, this is going to be very costly and push prices up. Certainly it’s going to cause big resource problems in the sense that demand might be greater than a reduced supply. Commodity prices, I know people say the Supercycle is behind us, but we’re moving into a world now where we’re moving out fossil fuels into a new era that’s going to be characterized by heavy dependence on metals.

You start thinking about all of the stuff that needs to be done to green electrify the economy. Copper inventories are already very, very low. We’ve got a massive increase in demand coming down the road.

Then lastly, there’s this deglobalization business: the impact of the shock from Russia. Russia is little compared to China and is not integrated into the global supply chains the way that China is. When we see some of the problems arising from the deglobalization, caused by the Russian fiasco, and then imagine that in spades with China. I think there’s a lot of these things coming down the road that the central banks should be more cognizant of, and more worried about.

Failing to see the supply side stuff, this has just been a recurrent problem for decades. 

[00:19:01] Alan

Yeah, and going back, you touched on that policy, the easy policy I guess, before the crisis. As you say, a lot of that was driven by inflation targeting and concerns about deflation.

I think it was, Bernanke, who was, obviously, a student of the Great Depression, and he wrote a paper, or he gave a speech (I remember) in the early two thousands, maybe around 2002 or 2003, about, policies – how they could address it if deflation happened in the US.

That was definitely a big focus. From your perspective, the problem was maybe misdiagnosed in the sense that deflation, driven by a positive supply shock, shouldn’t have been problematic. Why do you think they got that wrong or were overly sensitive to deflation? Was that the experience of the Great Depression or where did that come from?

[00:20:01] William

I honestly think the intellectual leadership shown by the US and, of course, the elite universities has left a pretty strong impression on everybody. What the Americans were thinking tended to guide everybody else’s thinking. I think the definitive experience, historical experience, in the US was the Great Depression.

What’s that old line about? For a guy with a hammer, everything looks like a nail. They saw that as the problem. The Germans, of course, they’re defining historical moment was hyperinflation. So they tended to have a very different view about what the underlying problem was. I think the American view has become the more dominant one. As I said earlier on, there have been studies, not least of which at the BIS, but there was a paper by Atkenson and Keo, I think in the American Economic Review a few years ago, where they indicated the Great Depression in the US was unique.

That it was the only time when there was a significant reduction in real output that was associated with deflation. That most historical periods of deflation have been driven by positive productivity growth. The prices were going down, and there’s quite a literature on all of this too, well summarized by a Hobart paper by George Selgin from the Cato Institute, which I think was called Less Than Zero.

George goes back and looks at all of that literature. When you think about it,  productivity’s going up, so real wages have to go up. Then, in a sense, you have a choice. Do the real wages go up because real wages are W over P? Do real wages go up because W goes up? Or do real wages go up because P goes down? 

There was a big discussion that which was just totally forgotten. Even worse, in a sense, is the idea that it’s easy enough to understand, after the experience of the inflation of the 1970s and hyperinflations everywhere else, why inflation is bad beyond a certain point.

The arguments for deflation being bad are much less strong. I do think that getting drawn into that, that was a fundamental mistake. It goes back again to, as it were, the credibility of different people. The Americans, with having the big universities and the big economists, basically held the intellectual high ground and they brought everybody else along with them, wrongly.

[00:23:04] Alan

Yeah. The second aspect of that, you touched on, was the whole point about inflation targeting. Obviously, that was seen as a great success of central banking over the last maybe three to four decades. You had moved towards central bank independence, and inflation targeting, and central bankers would probably say that contributed to the fall of inflation, and long-term bond yields, et cetera.

We seem to go from a desire for price stability to a situation of central banks targeting a specific rate of inflation and being very keen to raise inflation and actively stimulate the economy to try and raise inflation to hit a target. Again, do you think that was the wrong approach? Was there a theoretical misconception there, or how did we go from the desire for price stability to this targeting a very specific inflation rate? 

[00:24:04] William

I don’t know. I’ve often used the expression, “It morphed into what it did.” In the beginning it was “price stability is necessary”, to becoming “price stability is sufficient” to ensure macroeconomic stability. Therefore, if you’ve got price stability, you can (in a certain sense) get away with whatever kind of policies (stimulative policies), because everything’s going to be okay. 

As I pointed out in a paper (that I think I wrote in 2005, called Is Price Stability Enough?), when you look at history, there was no inflation in Japan prior to the Japanese crisis. There was no inflation in Southeast Asia before the Asian crisis. There was no inflation in the United States before the Great Depression. How this idea that really bad things can’t happen if you’ve got price stability; how that idea came to be so well established beats me. This is not the realm of economics. This is the realm of psychology. 

The honest truth is that in many different realms, people believe stuff that just simply isn’t true. Then it just takes a really big shock to unstick that set of beliefs. This is Thomas Kuhn in The Structure Of Scientific Revolutions. He speaks about this in the realm of science, sometimes paraphrased wrongly (apparently) as “science advances funeral by funeral.” 

[00:25:58] Alan

Taking that point a bit further, and you touched on the paper in 2005, and it was around that time (maybe a little bit earlier, I think), when you famously, I think, confronted Alan Greenspan at Jackson Hole with that kind of perspective, that the Fed was being overly easy with policy and not being sufficiently cognizant of the risk of excessive credit growth, et cetera.

Obviously, Greenspan was somebody who was always very attuned to the financial markets and the financial cycle, but still, obviously, famously seemed to be unwilling to deal with the irrational exuberance, as he called it himself. Do you think it was the fact that a few influential people, like Greenspan, held that belief (that we are suggesting) that influenced a wide ray of people in the industry and that just became the consensus? 

[00:26:57] William

Certainly that was part of it, as well as the Americans holding the kind of intellectual high ground. I think the fact that Alan Greenspan basically felt that the policy that we were recommending, which was leaning (as we call it), leaning against the wind of excessive credit growth, the fact that he felt that this was probably not desirable, and secondly couldn’t be done effectively. I think at Jackson Hole he said he didn’t know of any example of anybody ever leaning against a credit bubble where they’d done so successfully; that you just cleaned up afterwards.

Our view was that, one, it was possible to lean against the credit bubble, and that conversely, cleaning up afterwards would not be as easy as Alan Greenspan anticipated it would be. I guess that I would’ve thought that after the crisis of 2009, 2010, and the magnitude and the duration of the costs of that crisis, would have led people to conclude that their previous beliefs were false, but they didn’t.

More broadly, when I think more broadly of the kind of models that are used in most central banks to predict the future, those models in fact are not very useful. They’re premised on the future being like the past. Unfortunately in the real world that’s often not the case.

[00:28:57] Alan

From your perspective, if you go back to that period, 2003 to 2007, obviously we were in the midst of a Fed tightening cycle, but it was very gradual and very well telegraphed. It was 25 basis points at every meeting. I think at least it felt like that. Would it have been more like what we’re seeing now, in terms of 75 BPS rate rises? What would’ve leaning against it looked like? Or what would it have been? 

[00:29:27] William

I think the Fed, leading up to the crisis of 2008, that everybody should have been tighter, but probably tighter earlier than most people would’ve thought of as being possible or desirable.

There is, again, a kind of literature on tightening and some people would contend that if you tighten late in the cycle, the credit cycle, actually what you do is you precipitate the bust that you’re actually trying to avoid. Then it affects your reputation, et cetera, et cetera.

The real secret is to start leaning early enough to be able to reduce the magnitude of the upswing, because the historical evidence seems to indicate that the downside of the boom/bust is very much related to the amplitude of the boom.

What we were also saying at the BIS was that you should be using some combination of not just macro tightening but macro prudential tightening. Of course that got no support at all. In fact, I mean in the post-crisis period, as they were using monetary policy to try to deal with the slump, and it was having all of these undesirable side effects, the basic idea was that you should use macro prudential to tighten in order to support easy money. Whereas our original suggestion was that both of them should be used to try to reduce the amplitude of the boom. 

[00:31:26] Alan

Going back to the period then after the crisis, we take your point on the unintended consequences. I guess the flip side is, from a political perspective, there was that political desire, again, driven by an economic perspective for austerity and tighter fiscal pilot policy. This, obviously, left monetary policy as the only game in town as it was caused. From a central banker’s perspective, presumably, you had sympathy for the central bankers to be painted into that, backed into a corner essentially. 

[00:32:09] William

Absolutely, in my own mind, I’ve never really resolved the extent to which they did what they did from 2009 through the pandemic. They did what they did because they thought it would be effective and was the most desirable policy to follow. There, I think they were wrong. 

Whether they were saying we’re the only game in town. Fiscal is moving in the opposite direction, regulatory policy is tightening. In the words of the ‘yes’ Prime Minister, Sir Humphrey, it was said to the Prime Minister, at a certain point, “Prime Minister, something must be done.”

Absolutely something must be done, and the central banks found themselves in a position where they probably found it pretty hard to avoid doing what they were doing. What’s the balance between the two? I’m not quite sure. Both of them were probably playing out. 

[00:33:16] Alan

So, bringing that up to the current day and thinking about all of that, we’re into a point where policy is probably too stimulative and the easy policy may be addressed too slowly – that would probably be the market consensus.

Now central bankers are catching up and getting ahead of it. From your perspective, is that the right policy that we’re seeing now? Or given what you’re saying about supply shocks, do we just have to accept lower growth going forward? Or what’s the best way to calibrate policy in an environment of more constrained aggregate supply?

[00:33:58] William

The difference between this situation, let’s say in the 1970s where you had supply shocks, is that there was more of a tendency in the 1970s for the shocks to be self equilibrating. If you’re paying more for energy in the US, let’s say more for oil, you have less money to pay for something else.

The thing was essentially stagflationary, that your growth would slow at the same time as prices were going up. In a certain way you didn’t have to lean against it as much because the system itself was tending to equilibrate at a lower level of inflation and growth.

A lot of these supply side shocks, that are coming down the road now, when you think about them, they really ought to invite a lot more investment not less. When you start thinking about moving away from fossil fuels to non fossil fuels, that’s going to take a lot of investment, which is going to increase aggregate demand.

When you think about the demographics. All of a sudden companies can’t get the workers. What are they going to do? In part, what they’re going to do is they are going to raise investment in order to replace higher priced workers with real capital. The same thing with respect to climate change. We’re going to need to do a lot of things very, very differently.

[00:35:35] Alan

Is that an argument for accepting higher inflation then, do you think? Is that going to be part of the narrative that we hear going forward? 

[00:35:43] William

I don’t think it should be because an ongoing high inflation of that nature, beyond the period when the supply shock supply, will really just be a wage/price kind of spiral that does nobody any good.

It’s conceivable to head towards a kind of Latin American sort of solution. Nobody I think would recommend that. It is interesting, I was reading a paper just yesterday by Joe Gagon, from the Peterson Institute, and he’s talking about raising the inflation target to 4%.

You may remember Olivier Blanchard was also there, he was (earlier) talking about raising the inflation target. There’s no question that a higher inflation target is part of the way out. Indeed it’s not impossible that the central banks will say that they’re going back to 2%. In reality we’ll pursue qualities that are not so tight and might be more consistent with 4%, because they recognize that one way to get out of a debt problem, which is the kind of problem we have, is to just inflate it away. 

If you could convince the markets that inflation was under control at 2%, and it really wasn’t, then you really have got a form of financial repression where you’ve let inflation go up but you’ve kept the interest rates down, and you’ve eaten away at the dead overhang in that particular fashion. I don’t think that’s the attitude of the central banks. 

[00:37:32] Alan

Do central banks have those conversations? Obviously, you’ve been in central banking circles for many years. You don’t read comments like that in the minutes of the FOMC, talking about let’s get inflation higher to erode the real value of the debt, et cetera. Do those conversations happen at that high of a level?

[00:37:53] William

No, I don’t think so. I think the inflation targeting thing is so deeply embedded in the psychology of central bankers that they really wouldn’t countenance anything of that nature. That if they lose control it’s because they’ve made policy errors of whatever sort, rather than “let’s go for it.”

More likely is that the governments might decide to do that, which would imply a loss of central bank independence and, blah, blah, blah. When you consider who are the biggest debtors, it’s the governments. Who’s most likely to gain from a higher level of unexpected inflation? It’s the governments. 

There’s a lot of stuff in play here. The governments, if you do this intergenerational accounting stuff, you take into account all the off balance sheet promises as well as the contractual obligations of governments (the Cato Institute does this on a fairly regular basis, and the last time I looked, it was about two years ago, when they did these calculations), there’s a huge shortfall in virtually all Western countries between the tax revenues that can be expected under current legislation and the obligations that governments have made through entitlements and safety nets and all that kind of stuff.

Those numbers indicate maybe we’re starting to see a bit of that already. The governments have, over the years, made commitments that they will not be able to honor given current tax levels. That’s why I must say that when I was looking at this mini budget thing, where we’re going to cut taxes in an unfunded way, it just struck me as extraordinary.

I see the debt problem already as being very difficult to manage. In addition, all of those supply side shocks, that I was talking about, will invite or even necessitate big spending in order to deal with them (just think about climate change in particular), there’s going to be a lot of pressure on governments. And the idea of cutting taxes just struck me as odd.

[00:40:27] Alan

Yeah, totally out of sync with the prevailing economic orthodoxy, I would say.

When you’re talking about the debt problem, obviously you’ve got government debt, you’ve got corporate debt, you’ve got household debt. Going into the financial crisis, it was household mortgage debt that was at the root cause of that. Is it the government debt that you see as the big issue at the moment? Is it the current trajectory and then the future growth from the commitments, is that what you really see as the big problem? 

[00:41:03] William

Yeah, I think in some western countries, the household debt has been brought down, particularly in the US. In other countries, of course, I think even in the UK, the household debt levels are still quite high. In places like Canada or Sweden, some of the Nordic countries, they’re extremely high and worrisome – household debt. 

More broadly, there’s a lot of worry about corporate debt. Not just corporate debt – the level of corporate debt, but the quality of corporate debt. You look at the way in which all of that stuff that’s been issued at very low rates of interest, since 2008, the corporate debt that’s clustered around Triple B, I think almost 50% of it now is triple B, something of that nature.

There’s increasing worry too about overseas debt. Everything’s overseas to somebody else. What I really meant was emerging markets, that there’s a lot of concern there both about governments and about private corporate debt. A lot of the private corporate debt has been issued in dollars. The fact that the Fed is now tightening as aggressively as they are is creating a lot of difficulties for people.

As I said earlier on, when you’ve got big debts and the interest rates go up, then you’ve got problems for debt service. If you’ve got them not just at higher rates, but in a currency whose value is going up, then you’ve got the double whammy. I know the fund and people are increasingly worried about the emerging markets. 

Government debt, when I talked about this worry about the governments, the governments have a big problem in terms of the debt levels – in many cases at unprecedented levels. There will be a great tendency to turn to the central bank. 

Of course, another problem associated with what the central banks have done over the course of the last decade or so, and particularly since the pandemic is the massive increase in the size of the central banks. At the same time we’ve had a massive increase in government debt and the stock of government debt. It’s not hard to think about it, although the central banks will deny it, as being the central banks have actually financed that big increase in the government debt.

Then it’s just a small step further to go to say that’s what they did do, and that’s what they will do. Then it’s only a further small step to say, boy, that could be a bit dangerous. I think I better have a higher rate of interest in order to prepare myself for the risks associated with what they’re doing.

When you think about what happened in the gilts market, you know what triggered the whole thing was really that sort of sense of it. That the government had done something that basically was going to make their unfunded liabilities problem more serious. The market said, “I’m out of here.” Then as we know (and this goes back again to the earlier talk we had about the unintended consequences), it turns out that over the course of the last number of years there’s been a huge increase in the use of derivatives and increased risk taking – both increased risk taking that people understood they were taking and increased risk taking that they didn’t understand that they were taking.

Then, the second leg of it was when the pensions and the insurance companies had to start unwinding, selling collateral. Prices were already going down and they were selling still more of it to get cash. We saw it in the gilts market. 

There was an article in the FT yesterday (I think it was the FT), about the European pension funds. I can’t recall who they sent the letter to, but they’re basically making a case for a regular kind of safety net so that pensions and insurance companies in Europe can get cash when they need it, against collateral, through the central bank. Gillian Tett has an article, today, in the FT about the US being in the same situation.

[00:45:52] Alan

Yeah. The Bank of England did bring in a new liquidity facility, I think, to facilitate that. As you say, these are all the kind of unintended consequences that people hadn’t anticipated. 

How do you see that playing out on a multi-year basis? Is it that we see higher bond yields over time because of those liabilities and the increased spending?

We touched on how we might see a tolerance for higher inflation and financial repression. Is it that we see periodic debt crises or, you’re flagging risks, but can you paint a picture of how it might play out in a multi-year period?

[00:46:37] William

Let me say something about the system. When you think about the expansion of the safety net to pension funds and insurance companies that should have the right to come directly into the central bank, you want to start thinking about the long-term trends here.

I think those long-term trends, implied by the system that we’ve got, are essentially unsustainable. The way that it works, and has worked for decades, is you start off with the banks and you say, “We can have runs on banks. Oh, that’s very costly, so we need safety nets.”

So you get safety nets for the banks and then you say, “Oh, safety nets. That’s a moral hazard. We need regulation to deal with the moral hazard.” 

The regulation just invites evasion, which is what was happening prior to the great financial crisis with the shadow banks and all that stuff. 

Now, it’s the secondary banking system, or the shadow banking system, that needs support, and they’re subject to runs. Now we need safety nets for them. So it continues. 

What we saw (I’m trying to get my crises straight, here) was that first it was the banks, and then it was the bank holding companies. Now, more recently, it’s been the buyer of last resort. Some people say the market maker of last resort – really the buyer of last resort. There’s anticipation here with this pension fund, et cetera, et cetera. There’s just another step, so that in the end you wind up with a safety net for everybody and moral hazard for everybody.

In the same sort of way as I see the regulatory framework as being unsustainable, particularly since the technology now is helping the evasion so much, both the regulatory system and the monetary system seem to me to be unsustainable over time. People should be thinking about much more fundamental changes. 

Anyway, that aside, where do we go from here? As you may know, I’ve been a proponent, for years, of the idea that the central banks have made a kind of fundamental philosophical error; that they think that the economic system is comprehensible and manageable.  That they understand it and they can control it. The actual reality is that the economic system, like many others in nature and society, is what they call a complex adaptive system. These systems break down all the time, and they often do so at tipping points, and the future is essentially unknowable.

I can tell you a story. Indeed, economists have been telling these stories about why you might expect debt deflation. I can tell you a story about why I expect debt deflation at this moment. Economists for years and years have been telling you stories about how you get very high inflation and hyperinflation. I can tell you a story along those lines too. 

Going forward, I guess my sense of it is that these inflationary shocks will in fact drive us into a recession, perhaps even a relatively deep recession. What will happen is that I said earlier on that deflation is not a dangerous thing. It’s only, let me qualify this…

[00:50:41] Alan

When it’s driven by positive supply shock. Yeah? 

[00:50:42] William

Yeah, it is a dangerous thing when you have, through your own policies, generated a level of debt that is going to be a burden on everybody. It’s easy to tell an Irving Fisher kind of story – debt deflation from the 1930s. It’s also not hard to tell a story of very aggressive fiscal and monetary policy resistance to that, basically causing expectations of inflation to come totally unstuck. Then you’ve got a world in which… 

There is a very famous article, written by Wallace and Sargent, back in 1981 (I think), which was called Some Unpleasant Monetaristic Arithmetic. Basically, the prevailing belief at the time was that if you kept the money supply under control, there’d be no problem. What Sargent and Wallace pointed out was that if the physical thing was not under control, attempts by the monetary authority to keep the money supply under control would basically explode.

In effect, what would happen is the central bank would resist the inflationary coming out of the exploding fiscal deficit. They would resist the interest rates going up, but then the interest rates would then feed back into the government debt service requirement, to magnify that requirement, and make the underlying inflationary problem even worse. In the end, the whole thing explodes. You can tell a story on both fronts and maybe one after the other. 

[00:52:23] Alan

Yeah. You’re touching on this whole area of what people call fiscal dominance, and how the fiscal authorities can allow policy to be more stimulative. Then that could push up bond yields, and that impacts on the central banks, how they’re executing their policy.

We saw this coming in the Bank of England there recently, where they on the one hand were planning quantitative tightening, but then they had to intervene to buy bonds again. That could be part of the scenario as you say. Do you think central bank credibility has already been undermined by this apparent belief, or this perception that the central banks funded a lot of the spending that we saw over the last couple of years? 

[00:53:20] William

Like many ideas, things can stay quite stable. This is characteristic of complex adaptive systems too. Things can stay very stable for a long period of time, and then they come unstuck. The Sargent/Wallace story is, in a sense, a bit like that. At a certain point, as the government has more and more recourse to the central bank, and the size of the central bank balance sheet goes up, that at a certain moment, you might call the Wile Coyote moment, the Minsky moment. 

At a certain point people see the writing on the wall, and then they say, I’m out of here. I don’t think we’re there yet, but you can tell that people are getting increasingly worried about this.

[00:54:13] Alan

If Central Banks had to step in, to fund deficits more aggressively, this is what we’re seeing in Japan already and for years people have speculated, what is the end game with the Bank of Japan? Effectively, I don’t know what the stats are now, but owning most of the bond market, if not all of it. If you saw that across a number of major economies, what does that look like? Is that sustainable or can that go on for many years? 

[00:54:46] William

The answer again, Alan, is, I don’t know. One of the points that you’d make is [that made by] the Sargent/Wallace paper, that this will all end in much higher inflation. They were really thinking in terms of one country.

Of course the first thing that you do when you become suspicious of your own country’s longer term price stability is you short the currency. You get a currency crisis. 

The question I’ve asked myself and I’ve asked others, and I have no answer is, what do you do when all of the central banks are doing the same thing? What if all of the governments and all of the central banks are in the same situation? 

Then, of course, you’d say then it’s gold or cryptocurrencies or whatever. I haven’t looked at the gold price recently, but I think it’s been going down. We’re not in that kind of territory. Crypto has been going down too. 

There hasn’t been that kind of revelatory moment, but it’s not to say that it can’t still come. I’m with the people who basically say that the governments and the central banks just cannot give up on sensible, longer term macroeconomic goals.

One of the principle mistakes in the mini budget was that it didn’t come with the sort of imprimatur and a statement that we have to do what we have to do in the short-term, but we have a clear, incredible plan, when this is all over, to get back to fiscal responsibility. I’m perfectly prepared to have governments run up deficits, and debts in periods of time when they have to, and central banks too, for that matter.

The point of the matter is that if you don’t want to run too big of risks, it’s got to be done in a way that constrains the future behavior of those institutions. That’s where we’re not seeing enough out. As I say, I think there’s been a growing worry about the link between government deficits and central bank balance sheets.

The other penny that is dropping in a lot of places (again I’m going to plead even more ignorance about this one, because it’s a purely psychological play), is that many of these central banks, now, are going to be losing money big time as the interest rates go up. I’ve seen estimates that indicate that if you did mark-to-market for the Fed, they’d probably be a trillion dollars underwater at the moment.

Their capital is something like 50 billion which is vastly in excess. Then you say, “But listen, the central banks – does it matter? Does that matter?” The deeper question that worries me. I know it doesn’t matter. It only matters when people say it matters, even though it doesn’t matter.

If you’ve got an institution absolutely at the heart of your fiat money system, and it’s losing money big time, the question is, what does that do to people’s expectations? It ought to do nothing. My worry is that it might do something. Anyway, this is all in the realm of psychology.

[00:58:16] Alan

Yeah, I suppose touching on that point, the psychological perspective or the non quantitative perspective, you make the point that what’s wrong with a lot of the macro models is this kind of belief that there’s some tendency back towards equilibrium. That there is an ability to model all of this stuff in the first place. 

Obviously an economic theory is that there has been this drive for more quantification, more maps, et cetera, used in economic research. It’s almost like economists have been seduced by their own theoretical brilliance and haven’t kept a close eye on economic history and what’s happening in the real world.

How does that get resolved or how do policy makers become more pragmatic and less wedded to those models? 

[00:59:20] William

Again, this is in the realm of psychology. Thomas Kuhn, when he wrote the book, The Structure of Scientific Revolutions, talked about how difficult it was, even in normal times, for people to change their views away from the prevailing belief.

Then, Daniel Kahneman, who wrote Thinking Fast and Slow, he basically contends that when times are not normal, something happens that something happens that is just totally inexplicable given your sort of analytical framework. Far from rejecting the framework, people sink more deeply into it because it’s the only thing they’ve got.

That may be some of what we’ve been seeing. How big a shock will be required to change the way people think about their analytical frameworks? I don’t know. As I say, with some of the widely used models, these DSGE models, crises of the sort that happened in 2008 couldn’t happen.

If something of that magnitude did happen, the system would very quickly go back to equilibrium of full employment and whatever inflation target the central banks wanted. Both of those things, the crisis that couldn’t happen did happen, and the crisis that should go away didn’t go away. Yet still people are writing articles based on the same kind of premise, using the same sort of frameworks.

Now, I’m sure that the central banks have always been pragmatic and their policies have not been driven by individual, specific models, but that sort of framework of, “It’ll sort itself out,” I think has not really gone away. 

[01:01:22] Alan

Yeah, I think it’s fair to say that the mainstream consensus view is still that the easy monetary policies after the crisis were correct.

Martin Wolf did a review of two books. Edward Chancellor’s book on the Price of Time, and Edward Chancellor has been on the Top Traders Unplugged podcast. He contrasted that with Ben Bernanke’s book, 21st Century Monetary Policy. Martin Wolf came down very strongly on the side of Ben Bernanke’s perspective being correct, and Edward Chancellors was incorrect.

He does give you a little bit of kudos in his article about correctly predicting some financial crises along the way. By and large doesn’t appear to have accepted that argument of the perils of easy money. I suppose part of that comes from a well meaning approach, if you think about it.

The whole point about the easy money; even Greenspan, in the ‘04, ‘05, ‘06 period, was of the belief of being able to keep unemployment low and extend the benefits to more people. We had the same in 2019 with Jerome Powell. This was the best labor market in a generation.

In a sense it’s a well meaning policy, but it still seems to be the consensus view that it was the right policy. Even Paul Krugman, I’ve seen writing recently, arguing that policy is maybe too tight for some of that period. Yeah, it seems like it takes a lot to change people’s perspectives.

[01:03:06] William

I have no idea when that turning point will come, if ever. As I’ve tried to express, my concern is that given simply more of the same kind of policies that we have been following, it seems to me that it makes the objective situation just more and more dangerous.

[01:03:31] Alan

When you look at the current situation relative to history, we’ve talked a little bit about the Great Depression, we’ve talked about, obviously, the financial crisis in 2008. You’ve touched on how we’re seeing more concerns from the IMF around emerging markets. Obviously, there are potential fault lines out there, but there always are. Often the next crisis comes from someplace that maybe is a little bit unforeseen. If you look back to ‘07, a lot of people thought the crisis was going to be with a dollar at that point, and this Bretton Woods two arrangement that was in place.

In terms of the international monetary system as well, which is something that has been talked about as another fault line, that with a potential shift away from the dollar with the international or a greater weaponization of the dollar, there’s such an array of potential catalysts. How do you assess all of those diverse trends that are going on? 

[01:04:38] William

Going back to this literature on complex adaptive systems, if the system itself is unstable, it doesn’t matter where the trigger comes from. It could be anything. 

In a certain sense, you’re wasting your time thinking about triggers because it’s almost inherently impossible to predict. Having said that, what am I most worried about? I suppose it’s this whole nexus of leverage that has been built up, and it’s out there in the shadows, and we don’t really know what’s there.

This is one of the real problems. We’ve moved from an area where banking finance, where the regulators have a pretty clear idea at least of what’s happening. Whereas with a lot of this new stuff, I don’t think anybody really knows what’s out there.

I remember saying to one of my colleagues at the BIS some years ago (who was on the payments and settlement side), and I said to him, “The payments and settlement systems really worked very well through 2009 and the crisis.” I said, “If I were you I’d be looking for that area as the trigger for the next crisis because it always comes from someplace unexpected.” [The response is], “It worked last time, so I’m sure it’ll be fine this time.” It won’t. Maybe not, maybe not. 

I think what’s gone on in the gilts market is, I worry it’s a kind of canary in the mine shaft for others. As I said earlier here, the Europeans are already talking about how the ECB has got to do what the Bank of England did. People are talking about that the Fed is really going to do it too. The point is that the pension funds and insurance companies are not the only people that have been doing some, as it turns out, risky things.

I guess it really didn’t sink into their consciousness, that whole idea of if rates go up, and the margins calls come, blah, blah, blah. There’s a whole lot of other people that have been given the incentive, by these very low interest rates and easy availability of credit, to do a lot of silly things.

One part of it is all of the money, for example, that’s gone into companies whose business model is not profitable today. It’s market share. You keep pumping more and more money into these outfits. In the end, of course, if they’re all intent on getting monopoly rents, which they are, they can’t all do it, and there’s going to be an awful lot of people who go to the wall.

I also ask myself the question of how can they do this kind of stuff without thinking about the regulators? Uber’s going to dominate the world in terms of taxis. Where are the regulators when it comes down to the price gouging? I think there’s a lot of silly things that have been done under the influence of these extremely easy financial conditions.

As we tighten, and the inflation forces start tightening, we’ll start to see some unwinding. 

[01:08:18] Alan

We’ve mentioned fiscal dominance, but of late we’ve heard more talk of financial dominance. I guess it’s this idea that, as the central banks tighten, we’ll have an accident somewhere along the way, somewhere in the system. Obviously what we found at gilts market was an example of that. 

[01:08:34] William

Absolutely. Janet Yellen, just the other day apparently, asked the committee of market makers in the US whether the treasury or government should be buying more short-term government securities.

You have the central bank basically saying, we’re going to do quantitative tightening, and then you’ve got this other problem that says, no, your balance sheet is not going to get smaller, it’s going to get bigger. It must raise questions in people’s minds about where this will all end.

If, in the end, worries about financial stability mean you have to keep monetary conditions easy enough to be inflationary, or not tight enough to be disinflationary in the face of supply side shocks, where does it all end? This has got to be a question that people are asking themselves. 

Another way to talk about it, is to say, are you worried about financial dominance, or are you worried about fiscal dominance? This is traditional. One way you sort out financial problems is the government pays for them, but it just turns private sector debt into public sector debt. The two of them are closely linked. Both of them are not good for a non-inflationary future. 

[01:10:09] Alan

No. Before we close up, I just wanted to get your perspective on Europe. We haven’t talked much about Europe. Europe is obviously unique in the sense of not having a single fiscal entity, but we’ve seen steps towards mutualization of debt in Europe in the last while.

Is that the trajectory of travel, do you think, going forward? Or do you think the structural issues with the Euro are going to reemerge? Is that, obviously, one of the possible fault lines that we may face in the next few years? How do you see the strains that we’re talking about playing out in a European context?

[01:10:47] William

It has certainly changed a lot in the last little while. The willingness of the Europeans to countenance much larger fiscal deficits in the part of member states; to countenance the issue of $700, $800 billion worth of Euro denominated bonds guaranteed by the center.

This is all brand new. In a certain sense it is welcome because, I think, in the aftermath of the great financial crisis, the degree of austerity demanded on some of the countries was excessive. Anyway, that I think is welcome.

It’s back to the moral hazard question that as long as the countries (for example – let’s say Italy is a good example), are using the funds available in a sensible way to provide long-term structural stability, that’s good. If they’re not, then it’s not so good.

I was pretty unhappy when Mario Draghi resigned, because it seemed to me that he was following some pretty sensible policies that were really focused on the long-term structural reforms that Italy needs to increase growth. Where that’s all going to go, I’ve no idea. There’s a political dimension there that I’m not an expert in at all.

One thought, though, that did occur to me is that we talk about the future of the dollar, and I do remember in 2007, 2008, there were lots of people (Nouriel Roubini was one of them) basically saying that there would be a dollar crisis, and that would precipitate a broader crisis.

There wasn’t, and in fact, the dollar just got stronger. When the pandemic hit it was exactly the same kind of thing. Now it’s running at record highs and wreaking havoc as it goes. I have an article coming out in the International Economy, which really questions whether the strength of the dollar will continue if we do have another big financial and economic crisis. I won’t go into all of the arguments that support that, against all of the historical evidence, where it hasn’t happened. 

One of the things that account for people not being attracted to the Euro market or to Chinese bonds, in the European cases because the market is just too fragmented. It could well be that with these current issues of centrally guaranteed bonds and prospective further ones, in order to deal with the sovereign debt of peripheral countries, that you might have (if they can deal with all the problems that they have), you might well have a currency where the market is much bigger, much more liquid, and used much more by people in the same way as the dollar market is used today. Who knows? But it’s a possibility. 

[01:14:18] Alan

Maybe briefly, if you could touch on a few of the points as to why the dollar might not be as stable in a future crisis if you can?

[01:14:30] William

I think the central point is that all of the underlying problems that have led people to say that the dollar system really ought to be in demise. That all of those problems are still out there and indeed are growing. US balance of payments, the trade deficits  are getting bigger, all of this stuff is a realm of speculation, but, if there was another big crisis the US response might be to be even more stimulative than other people might be. 

Going back to what we said earlier, they’re still fixated on the Great Depression. We have to avoid it. Others perhaps more fixated on hyperinflation, we have to avoid it. But they (the US) might pull out all the stops on the monetary fiscal side, aggravating already growing concerns about fiscal dominance and the size of the debt increases in recent years. 

Up until now the Americans have used swap lines, the Fed has used swap lines to provide dollars to people that are short dollars. That, in a sense, takes the pressure off. It’s a kind of safety net for the system as a whole. It makes people think we should stay in dollars because there’s a backstop. What if they decide, or Congress decides that they’re not going to provide dollars to these foreigners?

That’s an interesting question about the swaps and broadly about the international financial system. There is no guaranteed lender of last resort. The Fed can choose, under Congress’s oversight, what to lend and to whom. What if for some reason, all of a sudden that support is not there?

In the short-run, obviously, dollars had been in very, very short supply. Presumably the dollar would spike even further. The damage caused by it would be even greater. In the longer-run, there would be a growing tendency for people to say, “Hmm.” 

I think, too, the weaponization of the dollar, which has been done repeatedly, but this last one with Russia, and basically throwing them out of Swift. You can imagine that reserve managers in emerging markets (that are not good friends of the US and the Fed) basically saying to themselves, “Over time I think I don’t want to be in a position where all of my money is subject to being tied up by somebody else’s decisions.”

The Chinese have already got this international payment system that they’ve set up, which is nowhere as big as Swift (it still relies on Swift), but it’s not impossible to imagine them somehow rejigging things so that it doesn’t need the Swift connection; getting a further expansion. It all depends, of course, on what they’re going to do with their own money. All of these are stories. As I said before, in these complex systems, almost all the action is in the feedback mechanisms, so you don’t ever know until you actually see it play out what’s going to happen.

[01:18:16] Alan

Absolutely. It’s interesting because a lot of the people we talked to on this podcast are involved in systematic trading strategies, and they’re all based on this premise of trend following, that you don’t know where the big moves are going to occur, but it’s the very nature of this system; the inherent instability of the system, that means that these big moves will happen episodically. They’re almost inevitably going to happen because, as you say, you’ve got a system that’s complex adaptive. It’s driven by people who have to make decisions with behavioral biases and people who make policies, and they make errors in making those policies. It ties very much into that whole way of thinking. 

Before we wrap up, maybe it’d be great to get some perspective for people. Obviously, you’ve been working as an economist. You have a great perspective on economic theory, on the global economy, and that’s been built up over many years. For people who are coming into the markets now, and want to learn more about macro economics, want to learn more about central bank policy making, all of that stuff, what would you recommend for them to do, or read, or listen to? What kind of books or sources have been influential for you over the years?

[01:19:39] William

It’s funny, I have a big file on economic theory and it’s about a foot and a half high. When I took it off my shelf, it almost overwhelmed me. I think at the moment I keep going back to this complex adaptive stuff, that thinking about the world in those terms is very helpful.

There’s a book that came out about a year ago, I think, published by the OECD. There’s a Secretary there responsible for what they call New Approaches to Economic Challenges. The whole thing, the underlying aspect of it is that it’s complex and adaptive. There are all sorts of lessons that you can learn from that. The OECD published a whole book, with a lot of real heavy hitters, talking about the kind of insights that they had about the financial system and how it operates. I’d recommend that to anybody. I had a chapter in it myself, which is called Simple Lessons from Macro Policy Makers from Embracing Complexity.

The irony of it is that, at the conceptual level, you say the economy is complex and adaptive. The irony is that there’s some very simple lessons that come out for policy makers from just accepting that. There are things like these systems always break down according to a power law. The lesson is to be prepared. 

When you think about 2009, whether in Britain, or in Europe, or the United States, people were totally unprepared for what happened. Did you have adequate deposit insurance? Were you playing war games between the Central Bank and the Treasury about who does what, when? All of this kind of stuff, just in many countries, was not there.

Do you have adequate debt resolution procedures? We know that still hasn’t happened. In all sorts of studies, the OECD, the BIS, the G30, we don’t have adequate procedures for resolving debt problems, either at the corporate level, or the household level, or the sovereign level. Be prepared, we’re not. 

Policymakers should act more symmetrically. Every time a problem emerges we ease policy, interest rates, and fiscal, then we never tighten them as much in the upturn as we did in the downturn. The interest rates ratchet down and the debt levels ratchet up. It’s unsustainable. Yet, it continues. 

Expecting the unexpected, don’t focus on triggers, focus on the underlying systemic problems. In a complex system, for example, a single indicator, like price stability, is not going to guarantee overall macro stability. The lessons go on and on. 

Actually, going back to one of your recent questions, one of the things that this complex stuff teaches you is that everything is interconnected, no man is an island, no country should be conducting monetary policy on the assumption that what it does pertains only to itself. 

Now, you need an international monetary system, not the Non-system that we’ve got. That’s where I think I would start. I would start with the literature on complexity. That’s the literature about reality as opposed to some of the other stuff, which is about a kind of concocted synthetic reality that the economists have thought up for themselves.

[01:23:37] Alan

Very good. It’s fascinating speaking to you. 

We’ve had some volatility, I would say, in markets this year, but speaking to you, I get a sense that maybe we’re only starting to see some of the volatility in the markets and in the global economy that we may see over the next few years as we’ve been saying. It’s impossible to predict precisely how things are going to play out, but a reasonable forecast is that we will see more challenges and crises ahead. 

Thanks very much for coming on. It’s been an absolute pleasure speaking to you and absolutely fascinating. 

[01:24:34] William

It’s been a pleasure, Alan. Thank you very much. 

[01:24:38] Niels

Thank you so much, Alan and Bill, for a very special and insightful conversation that not only covered the past failures of Central Bank policies, but also the dangers around the current economic direction. I really enjoyed Bill’s account of how he believes that Central Banks were focusing on the wrong dangers – namely deflation, and how the easy money policies were not only unnecessary, but also ineffective, and dangerous, risking financial stability through miss allocation of resources.

I also agree with Bill that Central Banks bear a large part of the responsibility of where we are today, and that all of this could lead to an even bigger crisis than what we saw in 2008, and that what we have just seen, playing out in the UK, may be the precursor. Of course, his seven points, as to why inflationary shocks may persist for much longer, are really important to pay attention to as they may possibly lead to a very deep recession. Many of these points we have of course discussed in previous episodes. 

Finally, let me just reiterate Bill’s warning that we seem to already have a shortfall between the tax revenues received and the current government liabilities, which essentially means that, at some point, they can’t be honored. Of course, there are so many more gems in this conversation. 

Make sure you go and follow Bill’s and Alan’s work because, as you can tell from today’s conversation, there are many exciting facets to learn from those who have been sitting in the front row for many years, and we really look forward to exploring many more of them as our series continues.

From Alan and me, thanks so much for listening, and we look forward to being back with you on the next episode. In the meantime, take care of yourself, and take care of each other.

[01:26:28] Ending

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