Harvard Economist Rogoff: SVB Collapse the ‘Inevitable’ Result of Stimulus from Monetary, Fiscal Policy

ASHER Time now for ░░░░░░░░ exchange Kenneth Rogoff let ░░░░░░░░ bring him he s ░░░░░░░░ Professor of Economics and ░░░░░░░░ Policy at Harvard University ░░░░░░░░ a former chief economist ░░░░░░░░ the IMF He joins ░░░░░░░░ live now from Riyadh ░░░░░░░░ Saudi Arabia Professor thank ░░░░░░░░ so much for being ░░░░░░░░ us So is this ░░░░░░░░ bailout Your thoughts ROGOFF ░░░░░░░░ course it s a ░░░░░░░░ They re trying to ░░░░░░░░ around semiotics but there ░░░░░░░░ just wholesale panic so ░░░░░░░░ had to cover not ░░░░░░░░ depositors who were insured ░░░░░░░░ depositors who weren t ░░░░░░░░ and they also have ░░░░░░░░ program that lets people ░░░░░░░░ against government bonds for ░░░░░░░░ than they re worth ░░░░░░░░ because a lot of ░░░░░░░░ bought bonds when interest ░░░░░░░░ were 1 n or ░░░░░░░░ and then it went ░░░░░░░░ to 3 5 or ░░░░░░░░ And if you long ░░░░░░░░ asset paying out that ░░░░░░░░ rate it s worth ░░░░░░░░ and somebody on the ░░░░░░░░ won t pay you ░░░░░░░░ they will for a ░░░░░░░░ one and the government ░░░░░░░░ Well that s okay ░░░░░░░░ ll take it We ░░░░░░░░ at least give you ░░░░░░░░ loan for it So ░░░░░░░░ was bailing out everyone ░░░░░░░░ mean that s not ░░░░░░░░ bailing out a couple ░░░░░░░░ it s covering everybody ░░░░░░░░ so their equity holders ░░░░░░░░ other banks that might ░░░░░░░░ lost their money but ░░░░░░░░ t you know I ░░░░░░░░ go on but yes ░░░░░░░░ s really semantics to ░░░░░░░░ it s not a ░░░░░░░░ ASHER Okay so semantics ░░░░░░░░ is technically a bailout ░░░░░░░░ know you can call ░░░░░░░░ what you want but ░░░░░░░░ people are saying that ░░░░░░░░ was a bailout But ░░░░░░░░ the government really have ░░░░░░░░ other choice I mean ░░░░░░░░ have described this and ░░░░░░░░ look if the government ░░░░░░░░ t stepped in this ░░░░░░░░ have been a near ░░░░░░░░ event for the tech ░░░░░░░░ What are your thoughts ░░░░░░░░ that ROGOFF Well the ░░░░░░░░ bank the Silicon Valley ░░░░░░░░ that went under that ░░░░░░░░ had business with half ░░░░░░░░ all the tech firms ░░░░░░░░ the United States so ░░░░░░░░ a really big deal ░░░░░░░░ the other hand could ░░░░░░░░ have afforded to let ░░░░░░░░ of the big depositors ░░░░░░░░ lose 10 or 15 ░░░░░░░░ their money which is ░░░░░░░░ the case when banks ░░░░░░░░ under That s real ░░░░░░░░ I mean they put ░░░░░░░░ a guaranteed the likes ░░░░░░░░ which we really haven ░░░░░░░░ seen by covering everything ░░░░░░░░ that government says The ░░░░░░░░ quarter million dollars that ░░░░░░░░ a lot we will ░░░░░░░░ but if you have ░░░░░░░░ few billion dollars we ░░░░░░░░ t But not here ░░░░░░░░ said Nope everything ASHER ░░░░░░░░ who s to blame ░░░░░░░░ mean you know is ░░░░░░░░ about straight up mismanagement ░░░░░░░░ this about interest rates ░░░░░░░░ high You touched on ░░░░░░░░ I mean obviously they ░░░░░░░░ exposed and I guess ░░░░░░░░ s a combination of ░░░░░░░░ of the above but ░░░░░░░░ it also about you ░░░░░░░░ Trump era regulatory rollback ░░░░░░░░ it about the bank ░░░░░░░░ that happened at the ░░░░░░░░ of last week What ░░░░░░░░ you were going to ░░░░░░░░ there was one factor ░░░░░░░░ could have been changed ░░░░░░░░ would have averted all ░░░░░░░░ this what would that ░░░░░░░░ factor be ROGOFF Well ░░░░░░░░ think we had this ░░░░░░░░ experiment in fiscal and ░░░░░░░░ policy that led to ░░░░░░░░ having to raise interest ░░░░░░░░ and it was inevitable ░░░░░░░░ there d be some ░░░░░░░░ like this You can ░░░░░░░░ run the system on ░░░░░░░░ much of booming credit ░░░░░░░░ money and not have ░░░░░░░░ like this happen It ░░░░░░░░ t it s not ░░░░░░░░ end of the world ░░░░░░░░ mean there s a ░░░░░░░░ between running your financial ░░░░░░░░ so restrictively that they ░░░░░░░░ not loaning to innovative ░░░░░░░░ Silicon Valley Bank came ░░░░░░░░ being because some of ░░░░░░░░ more heavily regulated banks ░░░░░░░░ t want to lend ░░░░░░░░ these innovative startups So ░░░░░░░░ was doing a lot ░░░░░░░░ good but there s ░░░░░░░░ balance and there was ░░░░░░░░ mismanagement and I think ░░░░░░░░ regulators were asleep at ░░░░░░░░ switch here The Federal ░░░░░░░░ is supposed to oversee ░░░░░░░░ banks look at their ░░░░░░░░ that was big enough ░░░░░░░░ could have paid attention ░░░░░░░░ this one and I ░░░░░░░░ t know what they ░░░░░░░░ working on instead ASHER ░░░░░░░░ the Fed sees all ░░░░░░░░ this and they think ░░░░░░░░ I mean obviously they ░░░░░░░░ got the meeting next ░░░░░░░░ Interest rates you know ░░░░░░░░ might not have been ░░░░░░░░ only factor there were ░░░░░░░░ factors involved as you ░░░░░░░░ out especially when it ░░░░░░░░ to regulation and when ░░░░░░░░ comes to mismanagement and ░░░░░░░░ it comes to sort ░░░░░░░░ overly investing in one ░░░░░░░░ of group of assets ░░░░░░░░ of course interest rates ░░░░░░░░ a factor as well ░░░░░░░░ you got the fact ░░░░░░░░ we have been getting ░░░░░░░░ good news in terms ░░░░░░░░ inflation in this country ░░░░░░░░ does this sort of ░░░░░░░░ the calculation at all ░░░░░░░░ the Fed Should it ░░░░░░░░ if it doesn t ░░░░░░░░ Oh but I don ░░░░░░░░ think the news has ░░░░░░░░ that good with inflation ░░░░░░░░ headline number has been ░░░░░░░░ down because food prices ░░░░░░░░ gas prices couldn t ░░░░░░░░ up forever used car ░░░░░░░░ they come down but ░░░░░░░░ s deeply embedded in ░░░░░░░░ rest of the economy ░░░░░░░░ thing they call core ░░░░░░░░ which excludes these more ░░░░░░░░ things that was still ░░░░░░░░ high it went way ░░░░░░░░ in January it came ░░░░░░░░ a little bit in ░░░░░░░░ but it s way ░░░░░░░░ high It s going ░░░░░░░░ be very hard for ░░░░░░░░ Federal Reserve not to ░░░░░░░░ rates at least a ░░░░░░░░ a point I think ░░░░░░░░ s been talk which ░░░░░░░░ never really agreed with ░░░░░░░░ should go faster again ░░░░░░░░ Chair Powell said that ░░░░░░░░ a possibility I think ░░░░░░░░ s off the table ░░░░░░░░ they have to keep ░░░░░░░░ inflation it s just ░░░░░░░░ too high to stop ░░░░░░░░ I think they re ░░░░░░░░ to have to keep ░░░░░░░░ ahead slower steadier which ░░░░░░░░ thought they should have ░░░░░░░░ anyway And there ll ░░░░░░░░ be more accidents but ░░░░░░░░ don t want to ░░░░░░░░ up in a situation ░░░░░░░░ permanently ingrained higher inflation ░░░░░░░░ Some people are saying ░░░░░░░░ and give me your ░░░░░░░░ on this that they ░░░░░░░░ at least I mean ░░░░░░░░ touched on the fact ░░░░░░░░ there is going to ░░░░░░░░ a slice sort of ░░░░░░░░ a slice of 25 ░░░░░░░░ point increase but some ░░░░░░░░ are saying that look ░░░░░░░░ they should just pause ░░░░░░░░ a second Is that ░░░░░░░░ thinking at this point ░░░░░░░░ the headline number you ░░░░░░░░ you talk about the ░░░░░░░░ that the headline number ░░░░░░░░ certainly a lot is ░░░░░░░░ better but the actual ░░░░░░░░ inflation is deeply entrenched ░░░░░░░░ you think that given ░░░░░░░░ s happened down in ░░░░░░░░ that there should be ░░░░░░░░ pause ROGOFF You can ░░░░░░░░ it either way I ░░░░░░░░ have said that even ░░░░░░░░ the Silicon Valley collapse ░░░░░░░░ t happened this bank ░░░░░░░░ hadn t happened because ░░░░░░░░ knew you had to ░░░░░░░░ interest rates when they ░░░░░░░░ zero and now that ░░░░░░░░ re getting towards 5 ░░░░░░░░ s the Federal Reserve ░░░░░░░░ term policy rate and ░░░░░░░░ term rates are almost ░░░░░░░░ high now that they ░░░░░░░░ getting that high you ░░░░░░░░ less sure But I ░░░░░░░░ to say it still ░░░░░░░░ to me like interest ░░░░░░░░ are gonna have to ░░░░░░░░ up about maybe to ░░░░░░░░ eventually from where they ░░░░░░░░ And after years and ░░░░░░░░ of talk about we ░░░░░░░░ going to look at ░░░░░░░░ data we re going ░░░░░░░░ see what s happening ░░░░░░░░ the focus on inflation ░░░░░░░░ s kind of hard ░░░░░░░░ just walk away from ░░░░░░░░ They did this giant ░░░░░░░░ I mean that s ░░░░░░░░ I m gonna call ░░░░░░░░ that That definitely sort ░░░░░░░░ covers things for a ░░░░░░░░ and I think it ░░░░░░░░ done in part to ░░░░░░░░ their ability to keep ░░░░░░░░ back inflation I don ░░░░░░░░ know that they re ░░░░░░░░ to kill inflation but ░░░░░░░░ to bring back to ░░░░░░░░ or 3 5 Right ░░░░░░░░ the core inflation is ░░░░░░░░ 5 ASHER Right Ken ░░░░░░░░ live for us there ░░░░░░░░ you so much We ░░░░░░░░ you being on the ░░░░░░░░ ROGOFF: “Thank you.”