♪ hans: coming up on "bloomberg best," interviews from the davos economics for him. powerful leaders bring their insight to bloomberg television. >> we are continuing to invest in the downturn. >> do we think the world is falling apart? >> 2008, we are repeating it.

>> a unique perspective on the most pressing economic questions from the biggest names in business. join us now on "bloomberg best." >> hello, i am hans nichols, welcome to "bloomberg best." we had been at the world economic forum in davos and speaking with the most influential theirymakers to get there sense of the state of business today, and their vision for where it is heading. >> we just saw japan go into their territory in terms of the market. do you think this means a sinister connection for the economy? >> global growth has come down. the imf has revised their forecast for the current year. it becomes with a medium-term with future growth down the road. i think that is where we are at the moment. we have come out of the deepest financial crisis, and we are now nine years out of that crisis. at that point in time, the global order had reversed. the industrial countries were were falling behind

and lighting. they had implemented bold programs. the emerging markets have really strong tail winds. which some of them have used wisely, and some of them have not used wisely, and they are now facing correction. now the world is reverting to the old order. industrial countries are doing better than emerging markets, and emerging markets are seeing reverse capital flows. it is a normal correction. it will last for some more time, but i do not think we really see a downward spiral in the global economy. does it feel to you right now that this is just a correction, or are we at the beginning of something deeper and more enduring? >> it feels like a correction to me. if i thought china was in freefall, i would be really concerned. i actually don't. consumer and the service economy is holding up pretty

well in china. but there are parts that are way overdone, whether it is steel, coal, overbuilding of residential, and in certain of the interior cities, and so if you just take one anecdote, you could paint a really bad picture along with the stock market and currency in terms of the policy implantation. erik: if the selloff doesn't stop, what happens then? stephen: the markets become reality if they affect the behavior of regular people. at this point, i don't think that has happened. >> the markets are in turmoil.

here we worry about china, the fact that we may not have enough ammunition to deal with inflation. what do you think the markets are spooked by? >> well, overall my perspective is, if you want to look and forecast the real economy, look at the real economy, don't look at the financial markets as an ussrmediate through which the real economy. we have been in a period in which there has been a disconnect between what the financial markets tell you, and what the real economy shows you. it was really pronounced in china, when the financial markets with their own way almost unrelated to the economy. by the way, the correction in the financial markets in china is significant and maybe, i would say, welcome, because any balloon that has excessive air in it needs to find a way to get the air out without a complete explosion.

it will have some impact on growth in china, but let's face in the financial markets mirroring a very small fraction of the chinese economy. china will continue to grow. it will continue to grow at a slower rate than what it has. and it is by design that they have changed their growth strategy, which means they do not need to grow as rapidly. it has international implications. it reduces the demand for commodities by china. but the implications are a case-by-case approach. not everybody is affected. erik: once again, the selloff feels a little bit like 2009, but i hope not. what does it feel like you? >> it reflects a tug-of-war between the countries that are

growing, and can they sustain that. i think that tug-of-war things plays out in the market. erik: it sounds sensible. >> it is always sensible in retrospect. at the end of the day, these companies have to keep driving, ist we see in the economy just as strong as it was a few weeks ago. what we see now is how it plays out. francine: what is your main concern today? deflation? is it china? maurice: first, i would like to make just a small comment regarding the reaction of the markets. they are overreacting to news. i think there is no new news. when you look at the situation regarding oil price, or the growth in china, as well as the other issues, the global growth, we all knew since a while that the situation was not going to improve markedly in 2016.

i am just a little bit concerned by this overreaction. a global slowdown would be something new. maurice: it is not that new. it is not a real slowdown. we will not have the kind of growth that we were expecting. i don't know who besides the french were really thinking that the economy would take off next year or this year? >> the market is so near-sighted. this is the problem. the market sees these problems that are so immediate. the market does not know how to interpret that 4 billion human beings are going to have cheaper energy costs and that money will be put back into the real economy. we don't see that. it is so incremental. this is why the market still may have some digestive problems, but over the course of the next year, we will see a higher market.

global gdp will be around 3%. maybe not as high as the imf believes, but i am not that worried. >> you are managing a lot of assets for a lot of people. what are you hearing from them and would you telling them? >> it has been so fast, this correction that we are in the middle of, and in many ways, that is more helpful and more cathartic that if it were slow and painful. and i think that is allowing people to hope that it is just an asset price recovery and not something more to do that has to do with the fundamentals of the economy, and that can actually be quite helpful in some of all of the cash on the sidelines in many portfolios. and as you begin to find better entry levels, perhaps we can get back to more normal asset allocation but what we don't , hear is our clients panicking. you got some money coming out. not a lot of money jumping in at

any particular point in time. >> how much of this is china, how much of this is oil, and how much is this something else? a lot ofis conversation here about china and oil. those two things alone are in not going to cause a global recession. francine: a few weeks ago, you said we should actually be much more careful because there is a risk of repeating 2008. george: 2008, regarding repeating, if it was a time of a financial crisis and a bear market. and you have the same condition today. but the source of this equilibrium is different. in 2008, the root cause was a subprime crisis in america. now, the root cause is basically

china. so it is not comparable. china because growth is less than we think or deflation? george: it is deflation and over indebtedness of the chinese economy. the total social debt is down 300% and maybe actually might be up to 350% if you take into account the external debt. so, it is serious. ♪

♪ hans: welcome back to "bloomberg best." i'm hans nichols live in davos at the 2016 economic forum. here are "bloomberg best's" best conversations from the week. francine: when do you see it bottom out in oil prices? >> i think chinese is also an issue for oil. lower economic growth from china means lower, slower oil demand. which means there is going to be lots of oil in the market. we will have more supply than the demand. for 2016, the supply and demand , situation, prices will be under pressure and i don't see any reason why we will have a surprise increase in 2016. francine: what would it take for rebalance? at some point, this oversupply will come off the market. is there any possibility that after two months, this will

affect the market more? fatih: this index at very low investments, which means in a few years' time, there'll be a strong upward pressure on the prices because there will not be new projects to meet the growth and demand. this is very serious. when we look at the economies of major oil producers, they are in bad shape, and they may be in worse shape if the prices remain around these levels. francine: but you are telling me that we are creating a shock. we are creating now, we have the potential to create a shock, is that right? fatih: i wouldn't it use of the word shock, but it will provide a strong pressure on the upward sector because of the lack of investment two years in a row in the oil sector. >> when will markets rebalance?

is oil markets, i know there an over supply issue and difficult to call, but people want to know when to call the bottom. is it six months away, or in 12 months? daniel: i think because the producers show no inclination to get together, we think that in the second half of the year, this is so severe that you start to see a rebalance in the market, maybe at the beginning of 2017. >> does that rebalancing come on balance sheet? the suncor transaction announced this week in canada means that oil is much more cheaper then the global price. when you say rebalancing, what do you mean by that? >> we get out of this downward pressure on price and price starts to move up. in the second half of the year, we could see prices, you know, a good deal higher than they are today. not which would have been $100. not $60. not $70. but a market that is starting to come back and operate with the fundamentals in balance.

francine: and i do think -- >> the problem is, because this is actually a gop political geopolitical problem, to, which is that saudi arabia and iran are at odds and saudi arabia says that there is not room for iranian oil, and iran says it wants the market share back, and they need to get together, unless, and this is what we're saying, and we need to make sure that this happens and even the russians will get a cut. >> are production cuts really realistic? >> for me, i think this is more of a meeting and for a chance to sit down and talk. everybody emphasizes price, but price is really not the issue. >> what is the issue? >> it is about the future of the oil industry, the future of the oil business, so it is a whole lot more than price. what, for example, is the matter the signal we are sending about

-- we need to balance the interest. i don't think a cyclical downward turn it will show up tomorrow as a major upward movement to affect the economy. everybody has agreed on one thing -- prices today are not good enough and there is a lot of stock in the market. opec cannot do this all alone. what we need to do, we need to get opec and non-opec members and they need to talk. , >> i spent a large part of my career doing m&a deals where the oil prices were between $10 and $20 a barrel. >> a lot of people forget that. >> yeah, exactly. and there is a lot of consolidation the took place and some of the big companies were built. we're talking exxon, shell, bp, they were built when oil was $10 or $20 per barrel. i think this is a period when people are going to look to aggressively pursue

consolidation and rationalization. >> the energy market at this point is naturally clear where we are heading to. i think this creates a lot of economies for total and lots of companies. however, i think the positive side of it, we need to look at this as supply and demand economics and we need to overcome the current drop in price for crude oil, for example. the challenges for companies to focus on growth and to focus on long-term, and i think that is the way you can overcome the current challenges for your company outlook. francine: how much do you understand about what is going on in china? what is your view? yousef: i think we are excited about one important element, and the chinese government announced the position a month ago that , their economy heavily depends on foreign investment and an economy that will

stimulate domestic consumptions. at the same times, this would improve upon their quality of products. they want to go to mid and high in technological innovation. i think this is strategically a very positive transformation for china. francine: will it take time? yousef: it will take time. again, with the size of the economy like china, and the long run, it will transform into a very positive contribution towards the total world economy. ♪

hans: you are watching a special edition of "bloomberg best." political leaders, policy makers and power makers in , politics and finance all come together here for the week in davos. it is a group that has many common concerns, but their philosophies and perspectives differ. in that variety was on display in some of our best interviews of the week. francine: so are you expecting more volatility in 2016?

christine: there will be volatility in 2016. we have three major downside risks on the horizon one of , those is the massive chinese transition to a new economy, which will be bumpy but will , seem resolute and is welcome coming from a very high growth rate to a lower growth rate and moving from being export-driven driven, tonsumption, -- and alltry-driven that will entail a degree of volatility. the lower commodity prices are also going to entail a degree of volatility, as well as economic policies around the world and changes coming up in 2016. francine: your biggest concern is a risk of deflation and how banks deal with that? christine: the biggest concern is to make sure that the global economy actually is on track to provide enough growth to respond to the needs of those people who are looking for jobs, those

people who are expecting more inclusive and sustainable growth. that is the main concern. francine: and you think this will achieve that? christine: everybody has to do their job. what we have called for is an upgrade of policies. makers havet policy to cooperate more and focus on the right set of policies that will improve the global situation as well as their own domestic position. tom: how do the developed countries maintain confidence and avoid secular stagnation in emerging markets? >> growth would be good. we would love the industrial countries to grow faster and the real question is how we can make that happen? my sense is that certainly monetary stimulus has run its course. exit is an issue.

once you are in the situation, how do you get out of it? that is what we are grappling today. but globally speaking, i think the answer has to lie in the underpinnings of growth. the sort of structural reforms that we all know and love, but can't actually do. jonathan: are there any negative consequences at all of running a budget deficit above 3% with the debt to gdp ratio above 1%. -- above 100%. what are they? >> it is about debt. debt has to be reimbursed. debt is a burden to all of us. >> if you can borrow at 2%, why does it matter? >> the problem is -- if debt will keep rising, you can't do anything on your product services. you cannot finance education. you cannot finance health. you cannot finance security. you cannot finance anything. it is about gaining maneuver. you will not move forward for

proper economy, social, and security policies. priority in europe is security. >> i have to say, tom, it is a little interesting to me that when china was growing, everyone said they are exporting deflation. the making everything cheap. now they are collapsing. they are exporting inflation. francine: now they are deflating. [laughter] tom: are they exporting inflation, or is that an undergraduate fallacy? >> it was productivity shock that was good and now they are collapsing and it is not good. i certainly think that the overarching phenomenon of these central banks are facing real interest rates and that has driven them down. i think, you know, they have to think about negative interest rates. i have written for 20 years about phasing out large denomination notes so that you could go to more negative interest rates. that is still considered wacko, but who knows? tom: what is your policy

prescription to amend the nascent plutocracy in america? the proposal for what it's worth, i'm not sure it's going to happen, is change the way the tax system works. make a plan for the income tax system going out many years in a plan that has to automatically adapt to any inequality. so taxes on the rich go up in such a way to preserve the inequality we have today. i'm not proposing that we redress it now. can't we agreed that it has gone far enough? trust withdevelop the republican party about too much taxes, when you look at the aggregate sum of so many taxes, and even if it i give them my tax dollars, they won't know how to spend it? these are ancient traditions within our conservative ethos. bob: if i am talking to

republicans, i would emphasize -- tom: this is exclusive, mr. bob schiller talks to republicans. >> i have a free market side to my personality. >> really? ok. bob: the other thing is, we need to develop insurance, free market insurance vehicles to protect people against inequality. of course, we already have that, to some extent. life insurance, fire insurance, these are all engines protecting us. if your house burned down, you used to be poor. not true anymore. we just have to expand the scope of our insurance industry and we should start insuring livelihoods. hans: coming up, more interviews from "bloomberg best." ♪ the only way to get better is to challenge yourself,

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