hot dry winds are still spreading the flames, and hampering attempts by thousands of firefighters to get them under control. there's not been significant rainfall in months. the un is warning of catastrophic consequences as fighting intensifies in yemen. airstrikes from a saudi led coalition, backed by the us and britain, fighting houthi rebels, backed by iran, have nearly doubled in the first week of november compared to the whole of last month. the comic book writer and editor, stan lee, who redefined the superhero genre at marvel comics, has died in los angeles. he was 95. during a prolific career, stan lee co—created a universe of heroes, including spider—man, the incredible hulk, iron man and the x—men. now on bbc news, it's time for hardtalk. welcome to hardtalk.

i'm sarah montague. the american economy is believing. growth is currently well above 3% and unemployment is near a 50—year low. president trump claims it is the best it has ever been and has taken the credit for that. but he is threatening a trade war with china at a time when many economists are warning that the us and the world face another recession. my my guest, mohamed el—erian, is chief economic adviser at the insurance giant, allianz. does he see dark days ahead for the american, and therefore the world's economy? mohamed el—erian, welcome to

hardtalk. thank you for having me on. president trump tweets, this is the greatest economy in the history of america. do you think the president has been good for the american economy? i think he's right in saying the economy is in a good place. it's not often you get three engines already not at the same time, and that's what's happening. consumption based on a strong labour market, business investment based on strong corporate sentiment. and on top of that you're getting fiscal spending kicking in as well. yes, the us economy is in a good place. yes, he's made an impact but what he's done is built on the momentum that was achieved also under barack obama. so the graft, straight-line, continued, but he's done things that have helped the economy? he's done two things in particular that have

helped the economy, one is deregulation, and business has really bought into deregulation, and that explains why the willingness to invest has gone up. it's never been about ability, companies had a lot of cash, it's been about willingness. the second thing he's done, and economists disagree about how a fish and it was, how fair it was, but economists agree that tax cuts will bring a boost to growth that will last a good two years, if not three. you said a year ago there was a 50% chance of another recession in the next two years. a year recession in the next two years. ayearon recession in the next two years. a year on from that, what would you put the probability at? ironically it depends on where you're looking in the world, the most important theme for the global economy today is divergences. most of the time advanced economies are correlated, they go up at the same time, they slow down. today we're seeing something very peculiar. the us is

accelerating while europe is slowing down. you see two interesting questions, what happens during the divergences? secondly, ultimately, how does the convergence proceed? is the us pulled down by the gravity of the us pulled down by the gravity of the rest of the world or does europe get act together and draw in the us? is the probability 50% for europe next year? yes. for the us? no. is the probability 50% for europe next year? yes. forthe us? no. how will it combine? it is to keep. for europe, next year, the chance of a recession are, what, 50%? they are not undertaking the fundamental handoff, which is what economists call secular growth to secular growth. think of a patient that ended up in intensive care, that's what eurozone was in in 2012, 2013, 2014, major questions about whether they would even survived. came out of intensive care, ended up in the

hospital room and now it is out and the initial reaction is wow, the patient can now walk and you've got a lot of confidence europe was picking up. but when the patient was structurally impaired, which is what the eurozone is today, it can't sustain its walk for a long time. you used a different metaphor, you talked about a t—junction. you used a different metaphor, you talked about a t-junction. correct. you have said one road leads to higher growth and a more inclusive form of capitalism, the other turns to recession, instability and turmoil. what do you mean by that inclusive form of capitalism? it means most of the people in the economy feel they are sharing the fruits of economic expansion. 0ne are sharing the fruits of economic expansion. one of the tragedies of the last few years coming out of the globalfinancial the last few years coming out of the global financial crisis was not only was growth too low, but the benefits of that growth went to a very small segment of the population, who happened to be the better of. are you just talking about europe here?

and the united states. the reason why there's so much anger and division in the united states is there's a feeling, rightly so, that wages haven't moved, even though the economy has boomed, markets have boomed, wages have been very sluggish until recently. employment in the united states is very low, so the idea of opportunity is there? it's interesting certainly the opportunity is there. let me give you very striking numbers. there's 4.9 millionjob openings. there's 4.1 million unemployed. so clearly there is opportunity is there, but there's a problem of mobility, there's a problem of mobility, there's a problem of mobility, there's a problem of skill mismatch. so the feeling among people is that they don't have the same opportunity as before. the us society is very interesting, it will tolerate a lot of inequality of income and wealth. in fact it views income and wealth inequality as being an advantage. yes, if you created facebook, you

should be a billionaire but the moment you bring in inequality, then you get angry people. you think that's driving the politics? absolutely, absolutely. what is the remedy for that? first is to understand that we need to take much more seriously this issue of inclusiveness, which, to be honest, hasn't really sunk in enough. secondly is to bring people into the economy. the labour participation rate, meaning people who have exited the labour force because they're totally discouraged, is still at multi— decade highs, and that's a real problem for society, it's a real problem for society, it's a real problem for the economy so there are measures you can do, infrastructure being an example. companies taking their responsibility more seriously about labour retooling and retraining is another example. this is a description that could apply in all developed countries? correct,

because there are three things that are because there are three things that a re really because there are three things that are really creating anxiety among people. technology, and will technology displace me or not? two is trust. people have lost trust in government is. people have lost trust in expert opinion, in institutions. and third is trade, am i going to be displaced by somebody else? and one of the ways you're suggesting that this could be addressed is by, what, a massive spend, borrowing to spend, to invest on infrastructure? there's three ways it can be addressed. 0ne on infrastructure? there's three ways it can be addressed. one is through structural reforms. increase people's access to proper education, to proper training. help them develop their skills. develop the infrastructure to allow for more activity. so there's a whole set of what i call structural reforms. secondly, for certain countries,

germany being an example, a more active use of fiscal... fiscal policy. there's countries where there is room to use fiscal policy. by there is room to use fiscal policy. by that you mean they can afford to spend some of their wealth, other countries are more indebted, germany is not? correct. notjust they can, they should. just germany? germany was an example. the us to a certain extent was an example under president 0bama, but congress was com pletely president 0bama, but congress was completely divided. the us went six yea rs completely divided. the us went six years without a budget approval process. despite the fact that people would see the united states as hugely indebted, you would say that's necessary and fine. why do you worry about debt? whether you're a company, country or individual, is debt sustainability, can you afford your debt? think of it as a fraction. the numerator is what we all focus on, debt, but the denomination, growth, how much income we generate is as important as the numerator. if you can use

debt to increase your potential, infrastructure being an example, at these very low interest rates, that's a good trade. infrastructure, you mention, in the united states, this is one area that after the mid—terms, despite all the division between the political parties, both are talking about working on infrastructure. do you think it's something where democrats and republicans can get some sort of deal? in theory, yes. in fact, they're talking about something very similar. they were also talking about it under president obama. in practice, let me ask you a question, will the democrats be wierling to do something that will promote economic growth right into the next election? that the political calculus. it stop the previous congress from approving it for president 0bama, and it may stop this congress approving it under president trump. the way you frame that question, the onus is on the democrats? correct, because they

wa nt to reca ptu re the democrats? correct, because they want to recapture the white house come 2020. they know if the economy continues to boom, that could be a factor in people's are thinking when they come to vote. 0k. 0ne they come to vote. 0k. one of the things president trump credit him with doing a considerable amount for the economy, what he is also, though, done, is slapped huge tariffs on chinese goods, $250 billion, and threatening another $267 billion. your assessment of the potential damage is not that great, that actually to hear your argument is there's a logic in some sense behind this. ironically i think the administration has stumbled into something that's notjust logical, but is going to work. limit explain why. i don't think anybody denies that we have problems. intellectual

property theft is a problem. forcing companies to take on partners and joint ventures, and seeing technology transferred is a problem. in the past, the approach to trade, which is inherently cooperative. if you and i trade, it's because both of us see an advantage. it's let's entice the other side to act fairly. economists have this thing called game theory where people negotiate. trade when you think it in game theory terms is a cooperative game. along comes —— and end he says, you know what, this character approach doesn't work. i'm going to use the stick. i'm going to turn trade into an uncooperative game. so everybody‘s shocked, and rightly so, i was shocked initially. the reaction is the other side says if you're going to slap tariffs on me, i'm going to slap tariffs on new. then the us stumbles into what i

call the reagan moment, it goes back to what reagan did in the 19805 with the soviet union when he embarked on a massive military buildup. the us realised it it's willing to incur the costs and risks of a trade war, because there are costs and risks, it will win every single time. what you've seen is country after country, starting with career, then mexico, then canada and now the eu i5 mexico, then canada and now the eu is in the process, realised the right approach is not to stick with that, the right approach is to diffuse the tensions. 0k, that, the right approach is to diffuse the tensions. ok, the comparison with reagan i5 diffuse the tensions. ok, the comparison with reagan is ultimately there was disarmament because the soviet union couldn't compete. here you're saying the united states i5 going to win any trade war, so every other country is going to recognise that at some point and cut a better deal? i think so, that at some point and cut a better deal? ithink so, and i would that at some point and cut a better deal? i think so, and i would be wrong on three counts, especially with china. 0ne wrong on three counts, especially with china. one is there not able to save with china. one is there not able to 5ave face domesticly, so they

continue with the tit for tat for too long. two is in the us, the trade i55ue goe5 too long. two is in the us, the trade i55ue goes from being a trade i55ue trade i55ue goes from being a trade issue to being a national security i55ue. people say wow, it's notjust about getting better trade terms, we can contain china and once it becomes a national security issue, it will become harder to solve. finally, china has a tendency to say we play the long game. president trump will be there maximum 5ix years, trump will be there maximum 5ix yea r5 , we trump will be there maximum 5ix yea rs, we can trump will be there maximum 5ix years, we can wait. that would be a mistake. and what they've said about the us approach is that its trade bullying practices, intimidating other countries through economic measures and accused the us of starting the largest trade war in economic history. you're saying all that may be true... up to the last point, because we've had bigger trade war5, it's true. the us has decided to pu5h other countries around on trade. ye5, pu5h other countries around on trade. yes, it is true. and yet you

5ay, trade. yes, it is true. and yet you say, from the various outcomes that you would expect, i think it is 75% of your outcomes are beneficial to the united states, only a quarter... correct. 0ne the united states, only a quarter... correct. one in four is there a chance of a trade war, but we have the former us trade secretary, hank paulson, talking about economic tension5 a5 a result of this reaching a breaking point, could tip into a full—blown trade war. i now see the prospect of a full—blown economic iron curtain, one that throws up walls on each side, anne dunham and makes the global economy. and that is the 25% risk. that's why mo5t and that is the 25% risk. that's why most people would say don't embarked on this strategy because 25% probability of something really bad... ifi probability of something really bad... if i say there's a 25% probability that, god forbid, on your drive home tonight you will have a massive crash. 0k, it may be a small probability but it is a huge event. i always ask when people say that, i agree with you, which, but

what probability do you attach to that? so therefore their meeting, the next meeting in argentina, which is at the end of this month, is significant, when the us and chinese leaders met. notjust significant, critical. and if the chinese are able to come to the table with three things, we could have a good outcome. three things being? one, some measures, especially on energy, the bilateral trade deficit. because that because that something that president trump really cares about. two, relaxing joint—venture requirements. no longer requiring us companies to take on a local partner. these two things are relatively easy. the third one is a tricky one, and it requires a lot of thinking. how to convince the us of a verifiable plant to reduce intellectual property theft —— plan. if china can deliver on these three things, i expect we are going to

have a breakthrough. ok, well, breakthrough or not, there are separate concerns increasingly raised about the prospect of recession in the united states. now, you make the point, already made the point that the united states is in a different place, its economy doing incredibly well. but you have said that there was a 50— 50 chance of another recession as far as the eu is concerned, europe is concerned. what would it be in the united states ? what would it be in the united states? it would be a lot lower. you only get a recession in the us if one of two things happen. if the fed, the central bank, makes a major policy mistake. possible but unlikely. and two, if the rest of the world goes into such a big recession that it drags down the us. you know, you can't be a good house ina bad you know, you can't be a good house in a bad neighbourhood. always remember that. so, no in a bad neighbourhood. always rememberthat. so, no matter in a bad neighbourhood. always remember that. so, no matter how good your house is, if the neighbourhood deteriorates really badly... ok, well, let's talk about

the neighbourhood. and it is a global neighbourhood. correct. but this is as a result of the global financial crisis in 2008, we had quantitive easing around the world, vast sums of money, and there is concerned about what happened to them, the risk that countries took on with that extra cash. is that in danger of not only pulling emerging market economies down, but also other developed economies? market economies down, but also other developed economie57m certainly is a big issue for major markets, because what happens is when you flood the system with liquidity, people go and search for opportunities in a much more aggressive way. where do they go? they go to places they don't understand well that, on paper, offer high returns, mostly emerging markets. these countries get flooded with capital. 0ften markets. these countries get flooded with capital. often it is used inefficiently. and then the investor changes her or his mind and pulls out, and these countries than face a

major contraction. now, it is important, it is not about the banks this time around. so this is not about the global system being at risk, like 2008. but it is particular countries and companies that have overborrowed, in particular investors that have taken excessive risk. so it is an issue, and it is not on the radar screens of enough people, because it is the non—bank sector, and people tend to worry less about the non—bank sector. but it is critical, then, what the us federal reserve does, because you are talking about debts that are denominated in dollars, and you are talking about a federal reserve which is in the process, because of what is going on in the united states, of raising interest rates. correct, and if you talk the federal reserve officials, they will say i hear but it is not my problem. countries must address it. and you say, well, it is your problem because this is the spillover effects of what you are doing. and they say well, we have a domestic mandate. 0ur mandate talks about

conditions in the us. and then you tell them well, when do you start worrying? and they say the famous word, spill back. when the spillover spills back, that is when they are going to worry, that is why other countries been complaining, but with no effect. ok, but we have also heard the former chair of the federal reserve, bernanke, talking about what is happening in the united states as a result of the huge stimulus, $1.5 trillion in bank cuts, 3.5 trillion, and he says the stimulus is going to affect the economy and a big way this year, and in 2020, so we are talking about the year after next, wiley coyote, that is the roadrunner cartoon that many people know, is going to go off the cliff, and you can imagine that picture of the roadrunner heading off the cliff and not a pretty picture. he is talking about the us economy. hears. is he wrong? so he is right in saying that the timing could have been a lot better. this fiscal stimulus should have come a

lot earlier. and in fact, it was proposed over and over again, but if you recall, congress was taking almost no action, because it was so split. the tea party had emerged... sure, but what damage will it do now? so his point is that the reason why you get this coyote moment is because this is a sugar high. right, the fiscal expansion makes everybody all excited, et cetera, like feeding your baby are a lot of sugar, and then there is that awful moment afterwards. he is right if potential growth doesn't go up. so the big bet that the trump administration is making is that, by encouraging companies to spend more, to invest more, by encouraging people to re—enter the labour force, they more, by encouraging people to re—enter the labourforce, they will increase the productive capacity of the economy. that is the bet. essentially that of the debt. is it a big bet? it is a huge debt. it is not a stupid bet, it actually makes

sense, but you've got to make sure that you get a handoff to secular growth —— bet. that you get a handoff to secular growth -- bet. when we are talking about shocks to the system, the u.k.'s about the potentially go through one, brexit, of course. there is the prospect of a no deal brexit, that the deal cannot be reached in time with the eu before the uk leaves. how damaging would that be? sewer hard brexit would make both the journey and the destination to whatever new relationship the uk has a lot harder, 0k? relationship the uk has a lot harder, ok? you remember... you know, a simple thing. you cannot replace something with nothing. hard brexit tomorrow or in march would have enormous difficulty because you haven't put the replacement infrastructure in place yet. so the uk, in my mind, would go into recession. now, some people will tell you, you know what? that cleansing. maybe we need a recession to get our act together on all these other issues. if the uk leaves the

eu without it deal, it will go into recession? yes. at how quickly? pretty quickly, pretty quickly. which means what? within three to four months. really? absolutely. and i don't think we are going to get a ha rd i don't think we are going to get a hard brexit. ithink i don't think we are going to get a hard brexit. i think if push comes to shove we are going to get another 12 month extension. because from the eu side... the uk will not leave?m will not be the cliff effect, that if the conservative party cannot agree on proposals, or if they can agree on proposals, or if they can agree but they cannot convince the eu, if there is some issue that stops an agreement for a transitional phase, then people are going to say, you know what? let's extend the deadline. so those who say, look, just trade under wto rules, this is a lot of fuss being made... rules, this is a lot of fuss being made. . . they rules, this is a lot of fuss being made... they don't quite understand the infrastructure. the pipes over decades have been built on the basis ofa decades have been built on the basis of a free trade area with europe. so

when you say suddenly trade under wto rules, you'll find you are missing quite a few pipes. do you think the british people should be worried about the direction that is being pursued? i think should, then yes. i think long—term, being pursued? i think should, then yes. ithink long—term, it being pursued? i think should, then yes. i think long—term, it is an open question. and i think a lot of people will be shocked by me saying that. but there was a fundamental problem from day one between the uk and europe. for europe, this whole integration issue is beyond economics. it is a marriage, it is holistic. the closer union. for the uk, it was more like dating. —— ever closer union. let's have a free trade zone but don't bring in all this other stuff, i don't want this ever closer union, ijust this other stuff, i don't want this ever closer union, i just want a date. and long—term, these are two mark fundamentally different visions. so we were going to have a clash at some point. so if you can deal with the journey, which

clash at some point. so if you can deal with thejourney, which is treaty, very tricky, the destination is mostly sustainable, but you need to get there. mohamed el-erian, thank you for coming on hardtalk. thank you very much. hello. many of us started the new week with frequent and heavy showers, and that brought some impressive cloud formations. an excellent example of a mammatus cloud here in somerset on monday afternoon. we also saw some sunshine, and when you put sunshine and showers together, well, it's a perfect recipe for rainbows. more showers to come through the early hours of tuesday. they will start to fade away from many southern and eastern areas, and generally become confined to northern england and parts of scotland. a fairly chilly end to the night across the highlands of scotland.

and through tuesday morning, there'll still be some showers, particularly for western scotland, north—west england. these will start to fade, and for most it's a mainly dry day. there'll be some spells of sunshine, but cloud will tend to build across northern ireland, the western isles of scotland, ahead of some rain through the evening. it's a breezy if not windy day. these are average wind strengths through the afternoon, but still quite gusty, particularly for western coasts. and temperature—wise, well, 10—14 celsius through tuesday afternoon, still on the mild side for the time of year. so through the evening, the rain already in the west will slowly start to push its way eastwards, and that's likely to become heavy for a time across parts of northern ireland, north wales, north—west england and western scotland. some patchy rain for the midlands, but otherwise, for central, southern and eastern england it should stay mainly dry. some clear spells, temperatures here holding up to nine or 10 celsius. in fact, for all, it's a mild night. looks like the wettest weather for northern england, scotland and northern ireland, all tied in with this front

which is still with us on wednesday. notice that squeeze in the isobars, so once again it becomes windy, particularly for the irish sea coasts. still some outbreaks of rain on wednesday, continuing across northern ireland, although it will start to clear through the day, and it continues across western parts of scotland. further east, there will be some spells of sunshine, with some help from the foehn effect. it could well be quite mild here, and eventually that rain will pull away from northern england. further south, across much of england and wales, it stays mainly dry. it is a mild day for all — 13—16 celsius. in fact, 16 celsius we could find across parts of murray and aberdeenshire. and we're all in this warm air as we go through wednesday, pulling it up from the south. this front is still fringing northern and western parts of the uk, so could just still see a little bit of patchy rain at times, but for most it becomes dry. there'll be some spells of sunshine. temperatures above average for the time of year, 14 or 15 celsius. but bear in mind towards the end of the week, although it's looking settled, we could well see some mist and fog, and that could be quite slow to clear. it'll change for the weekend.

it's mainly dry, still mild, light winds, but still clearing some mist and fog. this is the briefing — i'm sally bundock. our top story: the flames still rage, the death toll rises. more than 40 people are killed in the worst—ever wildfires to hit california. ahead of another crucial meeting of uk ministers, the prime minister says she's working round the clock to secure a brexit deal. giving a red card to fake news. we talk to students in kenya about what's real and what's a lie. stocks slide. asian markets follow wall street lower as investors hang up on apple. and it's deadline for italy to submit a revised budget or face fines from the eu. but the government says it won't budge.