Chapter 1: What is the main topic discussed in this episode?
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All investing is subject to risk. Vanguard Marketing Corporation Distributor. Bloomberg Audio Studios. Podcasts. Radio. News. Gita Gopinath has been Deputy Managing Director of the International Monetary Fund during one of the most transformative economic periods in modern history, including the pandemic, inflation shock and the push to de-globalize.
After seven years at the IMF, she's stepping down tomorrow and joins us now for a final conversation. Gita, welcome back to Bloomberg Surveillance and thank you for sharing your time with us this morning. Let's start there. Let's look at your time at the International Monetary Fund. Just how much has changed over almost a decade? Hi, and a pleasure to join you.
Pretty much, I think everything has changed. I started at the IMF in 2019, and that feels like that was the calm before the storm. And you had the pandemic, you had war in Ukraine, and now geoeconomic fragmentation. I think the global economic order is transforming in ways we haven't seen in decades. And it's still highly unclear where the global economy will settle.
I think the second big difference between 2019 and now is on the fiscal front. Debt levels are incredibly high. They are ever increasing. And while in the past you might have said, so what? Markets will take it. That's not the case anymore. Even in advanced economies, you see that in France, the UK, and also in terms of long yields in the US. And I say the third big change is on technology.
AI over the last few years has certainly caught the imagination of everybody. Huge promise, but also huge risks. How has the IMF's role changed during this period, given that it was set up under a very different infrastructure at a time when a lot of people are saying we're now in the post-Bretton Woods era? The IMF has great experience dealing with turbulence.
You know, there was a period when you had the end of Bretton Woods going off the fixed exchange rate to the dollar and the dollar to gold. That change happened and the IMF adapted. And we are obviously now in a world with big shifts in terms of how countries work with each other.
The IMF has always functioned as trying to do the art of the possible, which is do the best you can given the constraints and done it very successfully. So if ever there was a time for this institution, it's super important now. It has the ability to bring different countries together around the table, good discussions to happen in the economy, on the outlook.
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Chapter 2: What transformative events shaped the global economy during Gita Gopinath's tenure?
And everything we've seen so far points to all the members wanting the IMF to continue functioning as it has. We work very closely with the U.S. administration. That engagement is going extremely well. But also the other 190 member countries that we have. So as of now, Lots of support.
Of course, the environment has changed and the IMF is going to adapt to it in this new geopolitical environment that we have. But it has a lot of experience dealing with these kinds of events. One thing that you've done during your tenure at the IMF is really study the change in the geopolitical relationship. You've talked a lot about that, including the reliance on the dollar.
And that's been a point of big speculation of late in markets as well. How much are you actually seeing? worldwide nations try to shift to alternatives from the greenback, this idea of insulating themselves from some of the policy uncertainty that have made a lot of headlines this year? So we do see small shifts on the margin, right?
We are seeing countries diversifying out of the U.S., but again, on the margin, because they were so exposed to the U.S., several of them are hedging against dollar risk. We're seeing some of that, too. But I think The narrative that somehow something has dramatically changed about the behavior of the dollar, it's really too early.
People point to the correlation between what's happening with long-term bond yields and the strength of the dollar and saying, well, that's changed, and therefore something has changed dramatically. That's not the case. If you take a long enough period, the relationship between the dollar and borrowing costs is, you know, it can move in different ways. So there's nothing unprecedented.
But of course, these are still early days. We shall see where all of the shifts in the global economic order are headed. And I think that's the source of tremendous uncertainty that's still weighing on the world economy. How much has any perceived loss of Fed independence changed that?
And we've been talking about how there's this dissonance between the commentary by a lot of analysts and economists about the fear of some sort of loss of independence and then a lack of market reaction that you would kind of expect on the other side. Are you seeing any shifts there? that maybe are less visible?
I think everybody agrees, and this would be markets and economic professionals, policymakers, everybody agrees that central bank independence is critical, monetary policy independence is critical. So if we are not seeing much market reaction, it must be that people think that, well, that independence is still intact.
That independence has been critical to bring down inflation from the high levels we saw post-pandemic. Inflation expectations were anchored because of that inflation came down. So I don't think there's any ifs and buts about that. It must be that everybody still believes that independence, especially operational independence in terms of setting monetary policy rates, will be maintained.
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Chapter 3: How have debt levels changed in the global economy since 2019?
It's a major concern in France right now as we speak. But even in the U.S., long-term yields are basically back to pre-GFC level. We are away from that world of big global savings glut, away from that world of central banks buying large amounts of government assets. So I think it would be really complacent for any government, rich or poor, to say that, well, no, our debt will always be bought.
And I think one point I want to make is that we talk about resilience for the global economy, which has been really the you know, the positive of these last many years, despite all these shocks. But we should recognize that the reason we've seen resilience is because we haven't had a financial crisis.
Despite the pandemic, despite wars, despite geoeconomic fragmentation, despite Fed rates going up very sharply, we've not had a financial crisis. That doesn't mean that that will never happen. We have very high levels of debt around the world. I think bond markets are, you know, in a fragile place. You have valuations in equity markets that are sky high.
So I would say tread carefully, because if you do have a financial crisis, we know the scarring that comes from that is long-lasting. And when you talk about a financial crisis, some people were wondering what could potentially trigger it. Are you saying that the sovereign debt market of developed markets is of the greatest concern at this point?
I mean, usually when you get a financial crisis, it's a combination of events that can trigger it, right? And so if you have multiple markets that seem to be in a vulnerable position, you could end up with a negative event, right? And so the bond markets, which you're seeing with very high levels of debt, fragility associated with that,
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Chapter 4: What role does technology play in today's economic landscape?
equity valuations that are very high. Yes, there's a promise that maybe AI will truly transform the world, but as we know from the dot-com bust, even a technology like the internet that did transform the world went through a boom-bust cycle. So that combination, non-bank financial institutions, we've never had a crisis as well. They've been as large as they are right now.
The amount of corporate borrowing that's happening with NBFIs, much higher than pre-2019. So there's a lot that looks stretched at this moment. And at the same time, I think the world economy is gambling with all kinds of new policies. So I would say, Tread carefully. Make sure that financial supervision and regulation is continued.
Chapter 5: How has the IMF adapted to the changing global economic order?
See what needs to be done with NBFIs. What's the appropriate level of supervision and regulation that's required over there? All of that is going to be very important. So you're leaving the IMF and you're going back to Harvard, a university that you've known very well. What are you going to be doing there?
And how important is it for you to really get this sense back in the economics profession of pure research and true rigor versus some of the politicization that we've seen recently?
So I think the reason that the economics profession has been able to contribute so well over these last few years is because in the face of unprecedented shocks, you really need to go back to some of your training to figure out how you're going to respond to a pandemic that you haven't seen in 100 years or war in Europe, right? So having that base of knowledge is very important.
But at the same time, I think the economics profession has to recognize that there is something of a trust deficit, especially with mainstream economists. And how do we get over that? there's broad consensus in the economic profession that open trade, central bank independence, super important. Those are the crown jewels for good economic policy. And yet the policy direction is away from that.
So I think there is absolutely some bit of soul searching, some bit of stepping back and asking yourself, how do you solve this trust deficit? How do you make sure in this new world of communication that the good ideas still come through? Geeta, you've always been generous with your time. We appreciate it, and we wish you the best of luck. Thank you for sharing your time with us this morning.
Thank you. Geeta Gopinath at the IMF. Bloomberg Daybreak is your best way to get informed first thing in the morning, right in your podcast feed. Hi, I'm Karen Moscow. And I'm Nathan Hager. Each morning, we're up early putting together the latest episode of Bloomberg Daybreak U.S. Edition. It's your daily 15-minute podcast on the Listen to the Bloomberg Daybreak U.S.
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