00:00I might sort of ask you to put back on those two, the latter part of my intro there.
00:05How do you view the global economy at the moment from a policy perspective,
00:09from a US policy perspective, particularly as we kind of watch the interaction between
00:14the Chinese and US presidents on this meeting?
00:17Good to be with you, Heidi. I think the backdrop is if you look across a number of major economies,
00:22we're seeing booming demand that's colliding with a series of connected and compounding
00:27supply side shocks. And if you combine that backdrop with loose fiscal policy and loose financial
00:34conditions, you've got a problem as a central bank that has only one solution, which is to tighten
00:39monetary policy more rapidly than markets have priced. We had expected the Fed to hike
00:44three times this year back in June. The market is now pricing that reality. It's a shame, though,
00:50that this President Xi, President Trump summit isn't putting to rest some of the fears that are out
00:56there as it relates to AI coordination or even the imbalances in trade or the war in Iran because
01:02those are generating some of these supply shocks that are pushing up inflation to levels that are
01:06intolerable for most central banks. Have we passed the point where, because if you take a look at
01:10global markets, there's been a level of sanguineous, right, in terms of being able to shrug off some
01:16of these shocks. Are we getting to the point where they're unable to do that anymore? Well, if you look
01:21at yields,
01:21the degree to which investors are still sanguine at this backdrop is diminishing rapidly. Bond investors,
01:28at least. Bond investors, especially. And so the question is, at what level of yields do we see a
01:34correction in equity prices and credit spreads as well? I would say the character of this move
01:39is proceeding more rapidly than most equity investors should be comfortable with.
01:44What are your expectations in terms of what we could get out of China and the US? In a lot
01:48of ways,
01:48when it comes to AI, the sort of freedom to pursue the fast track is something that both Beijing and
01:55Washington want. Yeah. So this is the, I call it a geoeconomic prisoner's dilemma. The private sector
02:01labs have overwhelming financial incentives to make a maximalist push to the frontier. At the same time,
02:09there's a geopolitical prisoner's dilemma. If the US slows down, there's a fear by the US tech lobby that
02:15gives the advantage to China. And that's the recipe for miscalculation and the lack of guardrails that
02:21can mitigate some of the more catastrophic risks that have come into the public eye. When you have
02:26frontier lab employees saying extinction risk could be somewhere between 10 and 50 percent,
02:31we should all be concerned. We've been back this morning learning of that Medicare hack here in
02:36Australia, right, where the government was only alerted three months after the fact. If there's no
02:42interior incentive and there's no policy guardrail incentive to be really taking AI safety seriously,
02:49how big is the risk? Because I think the other side is that a lot of people say, well, look,
02:54humanity has been through so many of these big risk moments before. We've survived pandemics,
02:59we've survived global economic crises, you know, we've survived other technological
03:04milestones that seem threatening at the time. Is that fair or is this different?
03:08I think we should remain optimistic about the capacity of society to self-correct.
03:13But in the total absence of guardrails during one of the most innovative spurts in history,
03:19you know, you do have to worry about the algorithms that are being developed that
03:24the labs neither understand nor can they control. So I think there needs to be a certain degree of
03:29urgency to act now before an accident forces a reassessment of the risks involved. I'm afraid that
03:34I don't see the kind of indigenous political appetite in the U.S. or China or anywhere else
03:40to act before we get forced into a response the hard way.
03:44You've got tech wars, you've got trade wars, you've got actual wars on multiple fronts, right? Obviously
03:50myriad distractions for the U.S. government right now.
03:54What do you see as kind of the end game there? Because it feels like in the Middle East it
03:58is
03:59just this sort of elongated war of attrition that's built up again.
04:02Well, I say we're back to an old normal. The geoeconomic regime has changed. There's no
04:06end game to this. We're back to the environment that prevailed during the long sweep of history
04:11before 1990, after which we had almost 30 years of the great moderation. And so we're going to be in
04:16an environment in which we have more economic warfare, more actual conflict, more weaponization
04:21of choke points, more energy shortfalls, and a race to the commanding heights of cutting edge tech.
04:27That's not going to change anytime soon in my judgment. And so investors have to adjust to
04:31that reality. And so do policymakers. What are we missing at the moment?
04:37You know, what keeps me up at night if I had my policymaker hat on again is if we see
04:42a reescalation
04:43of the war in Iran after the midterms, what's the asymmetric response by Iran? And does it involve
04:49offensive cyber activity against the soft underbelly of the US critical infrastructure?
04:55Think about water utilities, for example. That's the kind of geopolitical risk that would certainly
05:01penetrate to market consciousness, and it could force an immediate reappraisal of valuations.
05:06So from an investor perspective or from a policymaker perspective, I would think very hard about
05:12the second order effects of a reescalation of this war.
05:16The great strategic economic competition of our time, who wins do you think? China or the US?
05:21Well, neither here's the reality. Neither the US nor China have escalation dominance as it relates
05:29to economic warfare. And the problem is that both have a form of mutual self-delusion. They think they
05:35can impose intolerable pain on the target while accepting or tolerating the likely response,
05:41which I think is also politically intolerable on both sides. And so the sooner the US and China
05:47recognize these realities and work towards a shared doctrine of restraint, the more likely we can regain
05:53global stability. Right now, it's a mirage.
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