francine: janet yellen speech. dollar tree. the markets -- the dollar retreats. from zero to one and three, investors increase the odds of a september rate hike. we have had hawkish hence from policymakers. merkel continues her european tour today in warsaw. she talks about a post-brexit block. this is bloomberg surveillance. i'm francine lacqua. the markets have been waiting for janet yellen speech. tom: finally it is here.

andeconomic data today again that look at the second quarter gdp will be a nice template to get from 8:30 new york time out to 10:00 a.m. in the headlines, and then to the yellen speech at 11:00 a.m. francine: we have gdp figures out of the u.k.. it was breaking news. pound a little bit stronger on the back of that. let's get to work first word news. >> southeast turkey, kurdish militants have attacked police. at least eight police officers were killed and 70 others wounded could all of this is according to turkish authorities. resume -- violence resumed between police and -- meanwhile u.s. secretary john kerry and russian foreign minister meet again today to try and find a resolution in serious civil war. war. syria's civil

turkey launched its biggest military operation in syria and trying to drive islamic militants away. in russia, vladimir putin has --ered snap military drills angela merkel accused russia of breaking international law. take has threatened to very serious measures after accusing ukraine of killing two russian soldiers and crimea. aftershocks a rocking parts of central italy, devastated by that earthquake. at least 250 people have been killed and hundreds injured. searchers are looking through the rubble to find survivors but they are running out of time. a new report -- in boosting inflation could consumer pricing in japan fell for a fifth straight month. gd -- was down .5% from a year ago.

japan is assessing its policy and that may lead to more easing. global news, 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. i am taylor raikes, this is bloomberg. tom: it has been the way it has been for the last couple of days. one big churn as we await the janet yellen speech. let's dive into this. 14 down to 11. there we are, 13.60. end.e go down to the a churn weaker over the last bond.ut still range what in the middle of the screen is what matters. us in the will join next half hour. to me it is a big deal in the boredom of the week that we have seen curve flattening. that is the market,

micro-adjusting. i don't want to over played, but to year yield higher, tenure lower going from -- 10 year relatively lower. francine, that is one of those micro-tweet of a market signal before a chair yellen speech. i micro-tweak but actually quite important, tom. i want to look at gold. i look -- i used the currency ask a you. -- it is my goal today because it is not a way of looking at the terminal. see how the markets are present thanks. this is a picture from pound. we had second quarter gdp figures. what itpre-brexit, but showed us is people were not shying away from investing in the u.k. right before brexit. the next set of numbers will be more significant.

it is a good way of looking at the pound. tom: i strongly agree with you on that at what i find interesting is the idea of real estate with a cheaper pound. not only will it be retail and consumption and london has been better than expected. i am fascinated iowa real estate will do. francine: the problem is we have had such a real estate boom in london, it is unlikely researchers say that we will continue at the level could commercial property in london has been under severe pressure, even before brexit. tom: let's go to bloomberg. this is an important chart. this is productivity in the running for the chart of the year. back 20 years, presidential moving average, look at the red arrow. there we are, mourning in america, 4% plus. real gdp. that is mourning in america. things are great. we go to the next boom, 2005,

2006. it is pretty good. we are now where we have rolled over to janet yellen has on her good work. bernanke with all of his good work. up we go and we roll over. the red arrow is from the circle over on the left to the circle over the right. are you ready? decline in real gdp, for it -- from a four handle, that is what jackson hole is about this morning. francine: it is and when you look at -- dollar strengthened and you put on gdp. i wonder how janet yellen is looking at your chart of the year. tom, this is my chart. gold price. i did this just because gold bowls are not taking any chances. long positions in futures and options which reached a record

last month. these are the options. they have dropped and five of the last six weeks. it was another look at how we are looking at the markets. we'll get more on that. where now with rick look i. mckay -- now with rick rick, great to have in the program. we need to talk about tom's chart. whatscoring everything is you expect janet yellen to say today. rick: there is a janet collar. she is data-driven. she is willing to take away that downside and be vigorous. equally she has pledged a level of vigilance. -- to raise rates quite low. we still have a lot of data.

once we are expecting some thing to happen this year. the 30% probability in september is probably a little low. i don't think we'll see very much. markets will be reassured on the data-driven yellen color. francine: data-driven is basically ways inflation. unemployment is pretty good. the u.s. economy is pretty good. most be looking at data? or the impact of dollar? rick: i think she is looking at data. short-termk at very inflation data and make a conclusion, but unless you have a switch policy as opposed to a continuous policy, you will look a little longer term. tom: i want to look at a chart that we are going to feature with brad hintz. this is going to be our single best chart of the day. let's do it in the five as well is the 6:00 here in new york. this is also about the financial

system. you got the three month, tenure spread and that big rollover and the flatness of the yield curve greatly affecting the two big and the less two big to fail system. with that said, as we going to this meeting, how do you measure our financial instability? should we be worried about finance as we are about economics? as a consequence of leverage, leverages creeping up certainly in the area. it is easy to get credit. the three month, 10 year question that you're raising is an interesting one. is it a good forecasting device for the future, in which case we should be very concerned about growth? is it a function of culmination of demographics and risk aversion? i think the latter is a little bit more of an influence than the former. in terms of financial stability,

capital -- quality of capital has risen it that is an important part. in the long bank system, you have a lot of people chasing yields. .ne has to be a little careful tom: i think it shows the dynamics and challenges within financial could what does it garner carney one of the speech -- financial. what does governor carney want out of the speech? rick: i am not quite sure he would put it quite in that personal term. he is faced with the paramount of uncertainty as a result of brexit. some of the more recent data was suggest uncertainty is a little -- uncertainty would be a little overstated. he will stay his cautious course. given the global rate led by the fed, i can understand he wants them to be a little more patient. francine: rick lacaille i, stay with bloomberg.

we bring interviews with fed officials, including james fuller, live from the jackson hole economic symposium people that today the getting at it :00 a.m. in new york -- beginning at 8:00 a.m. in new york. this is bloomberg. ♪

francine: it has been a week. see, i see -- we have given you a nice a picture. look at the london bridge. tom: tourism director for london in august. francine: i am fighting back, you said we had a dance we had an ugly skyline yesterday. tom: what is great about this bridge. you've got to go cross this bridge from south to north.

francine, if you go up toward st. paul's cathedral, on the left is a teensy wednesday italian pasta shop which is the best possible have ever tasted. francine: don't say that to an italian. >> consumer confidence is bouncing back after initial stock -- an index of consumer sentiment rose this month are the most in more than three years. it is not clear how this may turn into economic activity. the bank of a that's the bank of england -- china's postal savings bank is one step closer to its biggest ipo of the year, according to people familiar with the matter. the hong kong exchange has given its approval. postal savings bank plans to start gauging investor demand for the ipo next month. developing a new iphone feature for commuters in japan. it will let customers pay for

the bus and train rides with their smartphones instead of using payment cards. the iphone will use mobile technology developed by sony. that is your bloomberg business flash. francine: thank you so much. janet yellen speech in jackson hole is drawing attention from investors and central bankers around the world, particularly japan. tokyofowler joins us from , state street's richard lacaille is with us. brian, what are we expecting from governor kuroda? he shows up every year, but because because that's but because of the questions we have a negative rates, he will probably the in the spotlight. .> that is actually true the core cpi for july. 0.5% drop in that rate was the biggest drop since march 2013 which is the month that mr.

krone became governor -- mr. kuroda became governor of the boj. francine: we spoke to robert kaplan and this is what he had to say about the structural reforms needed in japan. >> negative rates might buy them time. they might on margin help ease with the trending. they are not a substitute for structural reforms. japanese officials are painfully aware those reforms are not easy. how to increase the workforce either increase fertility or immigration. these are very difficult things to do. they lack the structural reasons in japan. they try to get more women into the workforce good i don't think monetary policy is going to adjust the key issues. -- workforce. i don't think monetary policy is going to address the issues. francine: you have an older population in japan.

they are against immigration. what is a central banker to do in this kind of environment? people away? -- environment? do they pull away? brian: mr. kuroda has been pretty imaginative in his tenure. it was working at what we did see is prime minister they step in with structural reforms -- prime minister on the step in with reforms. it is weighing on personal land. tom: brian, thank you for ringing up inflation that we are rolling over this morning. i missed that important data in japan. florence alexander who was one of my favorite economist -- he says we have crossed the rubicon. everybody is in a new theory and new formula. everybody without exception will say except kuroda who is quietly

going about business. i don't buy that. what is the new orthodoxy for the bank of japan? with mr. garuda, anything is possible. we got people -- with mr. kuroda, anything is possible. helicopter money could be down the line. he said he would never talk about negative rates all through a last year and then earlier this year, negative interest rates were adopted. there is no way to say exactly what they are going to do. they are going to have this conference of review ahead of this next meeting, and then we will see maybe a new framework. tom: do they have time for the word "copper hints if." -- for the word "comprehensive." definitely we

believe abenomics is losing steam. it is a very lovely country, very clean, very happy. i don't think there's a sense of panic in the streets. definitely mr. abe has to come through beyond the fiscal stimulus package are -- stimulus package. francine: thank you very much, brian fowler. japan, it kind of feels like a slow burn. reforms arey-side slow going in terms of effects. -- and monetary policy can buy time. we've seen the same in europe. if action isn't taken, then you will not see growth. supply-side changes in making those big changes. we have not seen that in japan. tom: rick lacaille with us. we will continue with getting

you ready with our economic analysis. will look at finance. brad hintz joining us from new york university. the analysis of our banks. will he be direct? they are having trouble making money. brad hintz in our next hour. this is bloomberg. ♪

live picturesne: of hong kong. we're looking at property prices . i would go for the east to shanghai and beijing which are

considering new measures to rein in health prices could we saw some gains. shanghai home prices jumping 27% in july. that would be pretty punchy. talk about inflation. tom keene in new york and i'm francine lacqua in london. broker --r -- matthew what would signal a genuine determination -- what you're looking at is of course china did they continue by saying don't lose sleep. growth still trumps everything could this is a week where chinese shares counter with loss. this is a concern about more regulatory curves and where back with rick lacaille of state street. how do you view china? we're talking about growth. authorities -- rick: it is a wrenching transformation.

when you have a boom, there is a danger of that being distorted. i would agree that the only tool is interest rate policy or macro prudential policy that they can directly engage with the bank. temperate down. what is the underlying reason for that? people switching out of the stock market. the rate of growth has been spectacular but the stock started at a very low level. idea thein that is the world trade with china front and center. country to country, world trade is down. how do we reversed that? how does china reversed that? richard: that is a big worry for investors. global traders down for the wrong reasons. reviving china is going to be a

very slow process. the sentiment around trade has been improving. to support the idea that this is very beneficial. you got people pushing in the opposite direction on both sides of the atlantic. tom: i am sorry, rick. rick: i think that is important thing to change, the tone. if you look at the micro level [indiscernible] they are still doing the same things. tom: rick lacaille with this. we will continue. she is running for president. a conversation with america's americann and her green party. next. ♪

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may -- a deal with turkey may collapse over a these a dispute. you agreed to let turkish citizens travel to europe without a visa. leaders sayropean that turkey's antiterrorism measures are undemocratic. bickering and tedium marks the first day of the in-store -- of the historic impeachment trial. -- is expected to lose the final trial that will wrap up next wednesday and she is accused of using -- two heidi budget deficit. conservatives in the house of representatives have their own cussingent target, john he impededblican say an investigation into whether the tax agency improperly targeted conservative nonprofit groups. passed the measures house, it would be blocked by the democrats in the senate.

donald trump and hillary clinton are swapping -- over race. -- helping the radical fringe toeover one of america's major political parties. -- and use of private e-mails while secretary of state. disgraced american olympic summer, ryan lochte has a new sponsor. people can give lochte a second chance. ads.ll appear in global news, 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. tom: taylor, thank you so much. joining us from jackson hole is michael mckee.

warmer morning then you are used to seeing. he points out that only one year have markets moved off a key speech in j hall. that is 2010. would you expect market moves today? michael: the general feeling is no. this is the 40's anniversary of this conference. only 38 times has the federal reserve chair either skipped the meeting or come here to give an academic boring keynote speech. janet yellen may join ben bernanke. the rest of the time, it has not been that julie interesting. a lot of -- that particularly interesting. a lot of people think she will stick to that particular script and not be interesting.

the idea that she would take some addition laying out monetary policy moves in the future, not a lot of people give credibility. tom: the grizzly bear out behind you, i can see one behind you right now, they will be watching chair yellen. you will be watching chair yellen could so will other worthies like mr. kuroda and many others that you know better than me. how will they observe this speech? michael: everybody wants to know what the fed is doing. it is the central bank to the world. the idea of this conference is a long-term one. what do central bankers do in a policy situation where they are at the zero bound or negative rates and the economies don't respond? the markets one something more short-term. they expect central bankers will not care as much about that as the folks on wall street. francine: and he spoke to a lot of fed officials. i want to go back to something we heard from esther george.

she was talking but the fed rate hike. cooks i did express my view that i thought it was time to continue the process of normalization of interest rates. when i look at where we are with the job market. when i look at inflation, our forecast for that, i think it is time to move. francine: mike, what of the conversations like? are people worrying that if they don't start normalizing soon, the interest rate will have to go a lot faster very quickly? michael: there is a camp that believes that. esther george is in that camp. maybe two or three people at the moment. you have 21 -- you have two of three people who believe the fed doesn't move for a very long time. there is the vast middle that janet yellen would represent. saying they are somewhere in the middle.

they think it is getting close to time. the unemployment rate is at their mandate. when you look at inflation, it is not. . the anticipation of inflation, or do they wait to see the white of inflation's eyes. there is no real agreement on that which is causing some angst, because it is starting to make people on wall street a little frustrated. francine: a little frustrated. michael, our guest here has a question. wek: there will never switch go from an emergency rate to a normalized rate. in a world where others are grappling with negative interest rates, what does normalization look like from a global perspective? the context has changed, not just brexit, but the change. how much is that going to weigh on her speech? it will weigh on thinking. the dollar has eased. less than a challenge there. the differential will be

something defining what normalization is. michael: that is one of the key questions and i asked esther george that the other day. what is normal? say.aid she really cannot she thinks you're looking at a 3% funds rate. how fast do you get there? how quickly the markets adapted that. a very open question. it probably would be something that would fit under the longer terms of a janet yellen speech today. tom: since michael mckee is also early, we need to bring up the dots chart. we have two circles. the rain -2018. the white circle are two years out. you and i have never seen this. rick lacaille has ever seen this. .rancine has never seen this the grizzly bear behind her left shoulder has never seen this. the idea is chair yellen believe in the.? does anyone out in the whole

believe in the dot? .ichael: they do that is one of the reasons they haven't moved so far. they still believe in the phillips curve. unemployment declines, you are going to see inflation go up. the still hasn't happened. the phillips curve be flattered but we should see inflation rise because we are starting to see unemployment down to levels that someone would consider, meeting their full mandate. when does that happened back out you have a group that says it is going to happen and we have to put in advance. and then there's a group who says it is not happening, maybe we need to rethink this. francine: why is inflation so sticky. japan.ot just u.s. but you got deflation there. it will be very patchy could the

micro level coming of industries. it may not be in those areas where it will affect aggregate wage growth it might be difficult to detect. it is hard to argue that if you run out of people and you have a booming business, that wage growth is going to be there. detectable.'t be maybe it will not happen in 2017. it will push out to 2018. it is going to reflect that weak relationship. francine: where does the pressure come from? china echoed do we understand the into linkage? should we be doing it -- china? do we understand that inter-linkage? should we be viewing it? a deflationary force forcing it down. industry.ndustry by

globalization, off shoring are factors who planned this. as soon as you got precious, you may be asking yourself how do i deal with those precious. ask yourself how do i deal with these pressures? ,om: larry summer on inflation where the former secretary says we are on a dangerous battlefield. what is the immediacy and urgency this year in jackson hole? as compared to when you and i were there in august 2007? michael: the inflation picture has changed. we have sticky inflation on the downside. central banks are not able to created. they have not been integrated so far, whereas in 2007, they knew the answer. all he did was lower the interest rates. right now, that is not happening . how do you create inflation? is a group -- there is a group

that is in the old bottle will work camp. there are others who say we need to come up with some new tools. what tools can we find to fill our mandate, when what we are doing is not working? francine: michael mckee, thank you so much. rick lacaille. stay with bloomberg for federal -- for official fed coverage. we have an interview with robert live at thethat jackson hole economic symposium begin at 8:00 a.m. in new york -- it :00 a.m. in new york. this is bloomberg. ♪

francine: i am francine lacqua. tom keene is here.

let's get to bloomberg business flash. here's taylor. go volkswagen settlement with -- taylor coke volkswagen settlement with u.s. dealers got matter. .- unfixable used cars b debbie's price tag is a result of losses in the u.s. is more than $16 billion. starting next year, passengers on lufthansa flights will have --ess to online and fly powers in the ground existing in wi-fi services. are far behindes their american counterparts when it comes to offering internet service. videogame retailer gamestop boasted second quarter sales that missed estimates. expanding into mobile phones and collectibles because of slowing videogame sales. that is your bloomberg business

flash. tom? tom: rick lacaille of state street global advisors wrote a fabulous research note and uses an important word for janet yellen. let's get all get smarter before the this speech. bring up the lacaille quote. the title. "a decline in the efficacy of monetary policy." the reason, rick, whether it is is u.s. or europe and japan, the strange word "efficacy" is not happening. for janet yellen, what does efficacy mean? the past where there has been a strong link between monetary policy and growth. , if not broken,

is not as it was before. policy choices that it been made -- the fiscal levers they be pulled and we have other challenges. tom: i would suggest we are talking when we say efficacy matters about reaction functions. do the traditional reaction functions that all of these studies in schools, do they work in 2016 like when we were certain they worked in 2006? rick: i think they have been other tools which one might have thought might of had an impact. credit easing, massive purchases of securities that are grand cash into the system. your vet problems that have been too far-reaching.

it is a really big challenge. doesn't mean that monetary policy makers poor decisions. just too much was expected in a difficult environment. francine: what does it mean for how you view the market in this uncertain time? the time that monetary policy is the helping markets but we do not know the in game. how do you put your money -- where do you put your money? rick: we auto rebates expectations realistically about what assets are able to deliver. people are going to chase inappropriately risks to get to where they think they need to get to. if you take the yield curve as example, it is a flat you curve, they -- that may not be a forecast that may never have worked again. it reflects demographics. we have to be careful. policye: can fiscal which is the holy grail really fix anything?

it takes long. yet to be sure that you choose the right project. -- you have to be sure that you choose the right project. rick: it takes long to get shovels in the ground. with finance costs where the are , it is an obvious lever they could be pulled. on both sides of the atlantic. francine: rick, thanks so much. up next, the eu's path forward. merkel talks to the region leaders about a post-brexit lock. where life and brussels -- we are live in brussels. this is bloomberg. ♪

francine: live pictures from berlin. it will have a direct impact on retail sales probably. this is the most use excuse worldwide for white retail sales -- i am francine lacqua in london. let's get straight to angela merkel berlin and the german chancellor says eu needs to work hard to overcome brexit, calling it a watershed moment. merkel has been talking europe. today she is in warsaw meeting with leaders.

for more on this, let's go to shotberg reporter, in her -- what is on the merkel's main message that's what is angela merkel's main message? >> her main message is how do we move forward without the u.k.? she knows without britain everything is changing in the eu . the power balance has changed and what do we do now? how do we go forward? how do we keep our voters onside? what happened in the u.k. doesn't get repeated elsewhere. francine: wide you choose if you're as a merkel -- why do you choose if you're angela merkel to go to eastern europe? is there a linkage? that,hink as well is there is a realization that the eu is less popular in eastern european countries than it is

and perhaps more core eu countries, like italy and spain and germany. the eastern european countries are the ones who are wavering. they're the ones who are saying do we really want to be a part of this eu anymore? what is it doing for us? now?is the eu for i think she wants to make sure those governments are onside. francine: i want to bring in a quote. the current move a -- the current mood of discontent that makes leaders i would from treaties is a characteristic of a european dilemma. the stronger the case for change, the more reluctance -- the more reluctant governments reform.enact serious and hererkel counterparts will try and push for greater union. thing.at is the people asking what is the eu for

anymore. you are right, there is a sense that they need to make radical changes. they need to be -- there needs to be a significant improvement in what the eu is for. when the eu as a test is as unpopular -- particularly as the changes are different everywhere you look in europe. tom: yet to give me a primer on this. aresume younger and merkel kilometers apart. poland is a success story. it is a leading country. how far is berlin from warsaw right now? ian: politically, a very long way. the government of poland is more anti-eu than it has been for years. one would therefore assume that the people are to. it is all very well and good, but merkel is saying something.

the people in poland is seeing some thing opposite. tom: help us across the pond. are they a part of the bait -- of part of the debate -- are they a part of the debate? is poland even involved? ian: poland has got to be involved. this tour that merkel is doing. she is speaking to 12 leaders shows that she knows that she cannot do this on our own. the eu is not the united states where what one leader says goes. there are 28 if it leaders. therefore, she cannot pay lip service to poland. she has to really listen to what they want. whether she can then change to satisfy what they want, that is something different. francine: think it's much for the update. -- thank you so much for that update.

theresa may is coming back from our holiday very soon. we may have some kind of plan. what is the prescription? are you more worried about the eu or u.k.? rick: i think the eu is certainly a worry. those on the periphery may look to the u.k. to offset some of the instincts of the rest of the your. poland in the states -- the eu has been beneficial in binding them together. theresa may will focus entirely on u.k. and what sort of deal we can do. as we get into the autumn, maybe there are going to be some more debates about the feasibility of what everyone wants. tom: and look at this and i wonder -- let's leave it there. rick lacaille, thank you so

much. i have -- i am sorry, we have run out of time. francine, this is going to be a fascinating our could we link to the bank. francine: we will talk to the banks and link it to negative rates. it all leads back to janet yellen. tom: it goes to janet yellen again. the headlines out of the bloomberg, the market reaction and her speech at jackson hole. is in jacksonkee hole and having important conversations. brad heights -- brad hintz in our next hour. good morning. ♪

francine: janet yellen gives her most anticipated speech in jackson hole could can the fed

chair we grain credibility -- fed chair regain credibility? no one will listen more closely than james dimon and america's too big to fail bankers. the deer and antelope play this morning, conversations, no singing aloud. this is a bloomberg surveillance live. it is friday, august 1 to six. i tom keene in london. 26.t is friday, august i am tom keene in london. francine: i like that. we do economics of little bit differently on the show. tom: we do it a little differently but this is important friday in august. we will have wonderful coverage here and into the morning. conversations with bullard and others. regime change bullard and francine on to that. go ahead, please.

francine: this is been underpinning could we have been waiting for this speech and i don't know if it will deliver -- week this has been -- this has been underpinning. we have been waiting for this speech and i don't know if it will deliver. tom: first the tragedy in italy. >> in southeast turkey, kurdish militants have attacked police within attacked test with a truck filled with expletives. -- with a truck filled with explosives. violence resumed between police and kurdish militants after a two-year peace. meanwhile the u.s. secretary of the russianerry and foreign minister me today to find a resolution to russia's civil war. turkey -- isweek,

trying to drive islamic state militants away from its border. in russia, vladimir putin has ordered snapped military drills. the exercises began as as the merkel accused russia of breaking international laws in the ukraine. russia annexed crimea in 2014. italy, more aftershocks are rocking a part of central italy after it was devastated by the earthquake. at least to a to people have been killed and hundreds injured. searches are looking through the rubble to try and find survivors but they say they are running out of time. a new report underscores japan's difficulty in boosting inflation . consumer prices in japan fell for a fifth straight month. cpi retail food was down from a year ago. japan is reassessing its policies that may lead to more monetary easing.

global news, 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries. riggs, this is bloomberg. tom: let's get right to mr. mckie in jackson hole. futures churning. that is what you would expect. -- oil, 47.17. that is american oil. curve flattening this week. we will speak to brad hintz of new york university on the yield curve and what it means for banks and chair yellen. francine: caution, caution, caution. that is what is availing. -- that is what is prevailing. .dp figures were in line gdp was better than expected in the u.k., however it was pre-brexit. i wanted to show you gold ahead of that young speech.

tom: michael mckee in jackson hole. people protesting. they wore green shirts. michael mckee, i know the protesters. i believe the protesters are protesting again this year. has it janet yellen in the central banks applied a monetary policy to only advantage the elite? or do they feel in jackson hole they have helped all of america? michael: it depends on who you're talking about. officials from the u.s. and other central bank, they feel they have applied a policies that will help all of america and the world, because they are trying to boot -- boost growth and boost inflation. their mental would be a rising tide -- their mantle would be a rising tide would rise all boats.

-- people who are getting paid hourly raises -- hourly rages. that is the problem. how does monetary policy help everyone? it isn't clear at this point that they have the answer. tom: i am not sure you have seen to date calendar yet. are any of america's bankers in the audience today? are they not allowed to come to wyoming? michael: they are allowed to come they are not allowed in the room. fromconference has moved the heavy wall street presence to a more academic presence. this year, no exception. one of the big topics this year is what we do next in terms of monetary policy? what kind of alternative strategies could we pursue, prickly if any of our major economies fall back into recession -- particularly if any of our major economies fall back into recession? francine: mike, is there a chance -- what is the chance

that janet yellen disappoints? there's been so much expectation priced into the market that she will give some kind of direction . what happens if she doesn't? michael: the general consensus is there's a good chance she will disappoint if you're looking for to say september is what this is when we raise rates -- is when we raise rates. that is likely not to happen. her previously published scripts were data dependent. her conference and her focus is about the longer-term. wall street very focused on the short-term. francine: how did she and the others view dollars? michael: they have a long worry about the dollar getting strong. the fed raise rates, dollar did not go anywhere. it has been stable since 2014.

that doesn't seem to be an impediment at this point. it will be a point of discussion in terms of how monetary policy affects markets overall. you cannot argue that the dollar is the real reason that the fed doesn't want to move. tom: i look forward to our surveillance later this morning. the board regime may come up and jackson hole. joining us now, this is an odd twist. you would think we would get an economist in. but know we have a professor, brad hintz. when my team can to me in said and we have brad hintz? that is absolutely brilliant. this a john cryan want out of jackson hole? ,rad: higher yield curves everything they probably are not going to get. tom: america, we know it will help favors but does it help the

american economy to have higher interest rates? brad: the physical it to grow the overall economy -- the fed's goal is to grow the overall economy. banks do not always do well in different points in the monetary cycle. we are at a point that the banks are not doing well. we were to so much from deutsche. negative rate this native interest rates are our death. that is true -- negative interest rates are death. tom: this is real gdp stacked 20 years. everybody is living this, including the banks. when you see this decline in real gdp, down to under 200. do you assume janet yellen and her future chairman are going to have smaller banks and smaller american big system. brad: all of the regulation that we have seen since 2008 has been telling the large banks to shrink.

we have seen it. we have seen it in the sense of cutbacks and reduction in balance sheets. you heard it in terms of secondary effects. laura thinks saying there is no liquidity. there is no balance sheet because the banks cannot make any money on the balance sheet. it is the domino slowing through the economy. capital markets will survive. investment thinking will survive. commercial banking will survive but it is changing. business models are changing. it is making it so difficult for the banks. tom: let's bring in francine lacqua. francine: when you look at the banks, and against governor kuroda was trying to do it with the way that he. his negative rates experiments. is there anything central banks can do? brad: i think they have been

helping the banks. they want to healthy -- they want a healthy banking system. they are caught in a bit of a bind, right? the issue is how do you get the economies going. let's think of europe. i am now actively buying corporate bonds at what is that doing? that is court -- that is telling corporate treasures to issue in a corporate bond market. that is not helping a bank. it is necessary to get the economy going. the issue you've got is the regulators saying i have a bunch of what turns out to be competing goals. have to make sure the financial system is strong. and i have to get an economy going, lower interest rates. that hurts the bank it all of these things -- that hurts the bank. all of these things are temporary.

francine: is a regulation going to bar for the banks? the problem is they had to keep so much capital. these capital buffers that protect us good you can argue that the banks are putting money into that instead of lending. brad: is regulation tough on the banks? yes. i am not sure anybody can answer with great credibility. smith, another professor at nyu and myself have been working on a paper about where the investment banks are going. this thing is 25 pages long. paper.ascinating we cannot come up with an end because we do not see where the end is going to be on this pedal we know is the trend -- on this. all we know is what we are seeing. thiswe will continue discussion as we look toward janet yellen. we will digress on politics.

the green party in germany is different than here. jill stein leads the charge for a green party tour. she is in our washington news bureau. we will speak to her next. this is bloomberg. ♪

♪ tom: washington, they will be paying attention to cherry hill and speech. look for those headlines -- attention to chair yellen's speech. look at those headlines. mr. lockhart of atlanta. -- mr. right now, lockhart of atlanta will stop why. whatever your politics, all you

need to know is the internist from beth israel deaconess hospital in boston has a credibility to speak on our domestic policy. jill stein is running for president with a green party. dr. stein, great to have you here. i don't know where to begin. i will begin with was race could are you taking votes from secretary clinton? jill: in this race, we have two candidates which are the most disliked and un-trusted presidential candidates in our history. they don't have the votes to be taken away from it a majority of them -- a majority of the mac and people are clamoring for another voice and another choice . tom: you came out of the crucible of harvard medical. you know governor romney did the first experience tour of the affordable care act. it is in the care news now. no one is talking policy. we're talking bigotry. whatever the thing is to shore.

with the green party, what is your best affordable care act? jill: we had -- before we had obamacare, we had romney care in my home state of massachusetts. the costs were skyrocketing and people who had health problems filter the crack's. we knew long before obamacare was adopted that it was not a solution. we called for an improved medicare for all that would cover everyone and that would move a half trillion dollars a year which is spent on pushing and bureaucracy and red tape and instead, we would simple five the administration -- we would simplify the administration. we would use that access to cover everyone to expand health care. in this day and age it is an excuse will for the wealthiest country in the nation not to

divide health care. tom: the common ground of supporters is just to do something. for example, reinhardt from princeton university has come out against our health care system. what can the next president do? jill: the next president can urge congress and engage the american people. we know that in poland the poll, the amerco people are dissatisfied. -- in poll after poll, the american people are dissatisfied. away -- takesakes the waste out of health care and enables our health care dollars to be spent effectively. it controls the price gouging that we briefly heard of with the epipen where the cost has .kyrocketed by 400%

people are paying $500 for a pharmaceutical where the cost is one dollar. it is this kind of scouting that would be ended under medicare for all. francine: jill stein, i know you -- donald trump and hillary clinton are flawed. who is most aligned with your policy? i think trump says really despicable things but on the other hand, hillary clinton has a very troubling record. leading the charge into the failed catastrophic war on libya which helped feed the crisis with isis. the quagmire in syria. hillary clinton wants to start it near war -- start an air war over syria which could potentially lead to nuclear affectation with a nuclear power, that's a nuclear confrontation with a nuclear power.

while donald trump is the king of death which he calls himself who is embroiled in debt -- speaking of debt which he calls himself who is embroiled in that . -- iince is jobs overseas think the american people are rejecting these two candidates for very good reasons. they have a right to know about who they can vote for. we are pushing for to be admitted into the debate so the american people can make an informed choice. francine: i understand at this point, it is a given that one of them will become president of the united states. why are we in this stage of u.s. politics? what is different in 2016? jill: we have seen increasingly over the past couple of decades an incredible concentration of money in the hands of -- as the famous supreme court justice lewis grande iced said, we have

a choice between vast concentrations of wealth or democracy. that is fundamentally the problem, when there's so much wealth and power in so few hands, it is a way of buying its way into government. is that rigged political system that the mac and people are rejecting. tom: you are the green party. michael bloomberg of over television -- of bloomberg television. i am taken aback by the arctic ice melt reported by the goddess space center of nasa. how urgent is the ice melt toward the debate over climate change? jill: it is absolutely critical. the ice melt is one aspect of climate change which would be most devastating. what the recent science says is that we could be looking at as much as nine feet of sea level rise as soon as 2050. as you know, this would be a

civilization ending hit. it is important that we start now. the longer we take, the more difficult it will be to prevent that from happening. that is why we call for 100% clean renewable energy by 2030. tom: that is the goal. jill stein, thank you so much. we look for to talking to you again before the election. dr. stein represents the green party. janet yellen later this morning will have the headlines across the bloomberg. this is bloomberg. ♪

tom: good morning. we have to get through this robby gordon publishing and the financial times. professor gordon is without question the book of the year on our lack of productivity. capital formation has returned to levels last seen since before francine was born. every country has reformed its tax could to make it more competitive. important person in this debate is the next president. in england, is it the same way where leadership is required to get anything done post-brexit? francine: leadership is the basis and foundation of any strong economic growth. going back to tax. if you look at brexit, a lot of people said we could gain money by leaving the eu because it will be in control of your taxation system.

remember taxation ireland, 12.5%? tom: a careful read of professor gordon's book. michael mckee raves about it. it is a long read. writing with 10 assistants loaded with perspective on america across the 20th century and into this century. let me do a data check. currencies, nothing happening. this is what is before janet yellen. we'll talk to brad hintz of the beautiful new york university yellenhe curve and janet . it is a gorgeous new york. it is a spectacular -- ♪

this is angela merkel, a lot of the lawmakers they're coming back getting ready to negotiate with the eu.

london, tom keene is in new york. in europe. the refugee deal with turkey may collapse over a dispute. return, the eu agreed to let turkish citizens travel to europe without a be so. turkey says unless that happens by october it will end the refugee agreement. also, they say the anti-terrorism measures are undemocratic. the first result of the historic impeachment trial. members of the senate spent hours arguing over procedural matters/ the president is expected to lose the final trial. using accused of accounting tricks to hide the budget. conservatives in the u.s. have their own impeachment target, commissioner john. they will try to impeach and

next month. they say he impedes an investigation as to whether or not it targeted conservative nonprofit groups. they say it could be blocked by democrats in the senate. donald trump and hillary clinton are swapping blows and attacks. hillary clinton says trump is taking hate groups extreme. trump says she is trying to deflect over her family foundation and use of private e-mail while secretary of state. sponsor,te has a new the company says people should give him a second chance. sponsors dropped him after he lied about being robbed at the rio olympics. up.can't make that one

global news 24 hours a day powered by more than 2400 journalists. this is bloomberg. tom: thank you so much, there are multiple elephants in the large at jackson hole. negative interest rates, inflation, there was no greater one that our pending financial instability. they are adamant that will be a shift towards a study of bank and financial instability. look no further than deutsche bank, down 60% in share price since the peaks of 2015. brad, our great linkage between finance and economics at lehman brothers with the definitive black book reports. here.ful to have you how can the banks, in this surreal, great distortion, do anything? we hear they have to cut costs.

a yield curve that is flat. so, the banks can't make money from the spread. then, you have an economy that is not -- we have had a pickup in lending. but nothing like the one you would naturally expect and a recovering economy. them eating their lunch, or it looked like it in certain sectors. new players coming along looking for money transfer. that is another source. alitary costs are going up storm you can't spend money on new technology. all these things that are hurting the banks here. on the other hand, let's recognize that the banking system will survive.

it is just going to be generating returns that are really low. in the case of deutsche bank, it hasn't beaten its cost of capital. -- has notdone it done it since the crisis. tom: let's bring up the chart of the spreads. the red line is a three-month spread following down curve flattening. there are others you can look at. they want to get back to. they're not there. wrongctors are in the direction. currency dynamics, the exorbitant privilege of a strong dollar. i get that. mergers and acquisitions, back 20s, we don't to bank mergers well. >> we don't. what has built the banks we have today which is a series of mergers that occurred over 20

years -- we can't do that. that takes the too big to fail even larger. so, now you are beginning to ask questions of is it best to break them apart. our rules, in terms of the logical ideas, get rid of or split off the old american express. alone capital market operation survive in today's world? can it finance itself? will the regulators allow it? clearly, the message is "get smaller." go after fees, don't take risks. that is a tough model. francine: brad, what do we understand about the inter-linkage? they were considered far superior than the ones in the european union. at the same time, the stress

test in the u.s. failed to look at linkage. how much are you absolutely sure there was no systemic risk if something were to default? something in the commodity space, are you sure that contagion of the banks is not there? a very goodave done job in terms of reducing the contagion. you are absolutely right. the stress models are never perfect. they have done a good job in terms of the stress test. we are seeing it in europe. u.s. stress tests are getting stronger. you have alluded to the idea of a central clearing platform. the central clearing platforms they have established are now probably the weak point in the system. we have taken the swaps, and taken them apart. will the clearing platforms

altogether? they are beginning to look at that. every time you add another layer of regulation, the costs go up. the profitability goes down. the client's activity dries up. we haven't reached that plateau of stable regulation that allows everything to adjust. it is that constant change that has hurt the banking industry over the last five years. francine: brad, we have had you 40 minutes and have not focused on brexit. how much will u.s. banks and london have to downsize because of brexit? brad: i guess i am an optimist on brexit. if yo -- have you put your flat up for sale? probably not.

francine: not yet. i'm moving in with tom keene. tom: i want you to do buy or sell for the whole industry. they think there will deploy huge cash flows two years, three years, four years from now. do you buy this? brad: it is illegal for me to do buy. tom: i don't care. you're on "surveillance." brad: this becomes relative valuation goes to be solid happen with morgan stanley. you saw hedge funds come in and buy a piece of morgan stanley. i am buying it at 70, that is reasonable. survive?banks yes, we know that. way, a much more efficient of delivering financing. the question is, when will

pricing in just? we are not there yet. this is fun. this is great. this is what it is about. francine: it is. this is ahead of a janet yellen speech. we'll bring you interviews with many fed officials. be joined live from the -- this ise economic bloomberg.

♪ grancine: it is "bloomber surveillance." i am francine lacqua, tom keene is in new york. let's get to the bloomberg business flash.

>> cutting about 5500 jobs once the takeover of miller is complete. the cuts will be made over three years. save afterys it will the cutback. the justice department has opened a federal investigation into the greater of vegan mayonnaise. the question is whether or not they committed fraud. federal investigators have discussed the undercover buyback campaign with former hampton creek contractors. tom: thank you so much. this is fun, live a student from new york university, jerome snyder, was done better than good. and a professor of -- with us today. jerome, wonderful to have you back today for such a we go arcane right now? that would be this libor uproar.

short-term it elevated a little bit. there are changes in the market. is there a single of -- signal of financial instability? jerome: absolutely not. this is very different than 2008. this is a systemic, structural change. should have anticipated this for years.an two we have about money market reports. that is the exciting action driving libor higher. non-us banks are looking for funding. fundsg on money market for more than 40 years. that is generating the list in libor. the effects of negative rate on the pacific investment companies? thear eyoe you surviving negative rate wars? jerome: it creates a unique opportunity. there is a big picture perspective.

it can finance the balance sheet. this is the history of libor. they can issue certificates at deposit. that is priced at libor. secondly, they can borrow within the foreign currency market. an drivea way they c their balance sheet and close that gap. the reason i bring this up is thoseegative rate drive deposit of interest rate economies. importantly,e those institutions need that u.s. dollar funding. as am investor, --as an investor we can lend those dollars and hedge them perfectly. one example of that is buying no n japanese bills. very quickly, this means we are looking at libor

differently. mean something for the banks. now it is just and effective repricing. is that fair? how are repricing risk more generally -- we pricing risk more differently? are seeing that digestion really embodied by the increase in rate. some 50 basis point over the past year alone. if we cut that for libor, it is almost equivalent to a treasury yields. it as a structural change. the need for non-us banks to short-term finance. 2008. nowhere near francine: i don't understand where the stress is given with all the balance sheets. ali mispricing all risk worldwide?

influenceere is some from quantitative easing. that is making those with negative interest rates look to positive interest rates domains. it is not that your mispricing risk. when you look at those signs, in 2008 was libor. granted, that spread has widened 40 basis points. this is a digestion problem. tom: let me bring in the professor, the keeper of quality fees. professor, a question. brad: as you are seeing, the corporate bond rates drop in europe. they are actively buying them. you're seeing the banks moving into financing with long-term. that is affecting the libor.

demand on the short end is going live. how long will this continue? i assume you are saying this is an aberration. jerome: not to correct my professor, but what is important is to focus on that this is a structural change. it was mispriced for many years because of the ability of these institutions to get cheap funding. cheaps changed is that funding is no longer available. the cost of that structure has increased. what they're doing is condensation with terms to regulation. other requirements are coming up in the next few years. they need to extend that liability. that is the digestion problem. the constitution of bank's

capital is inherently changing. we are just observing it on the front end of the yield curve. get jerome, we will let you out of here with an a minus. jerome: thanks for the pop quiz. tom: what he talks about is the is important. nobody pays attention to the market. brad: every corporate treasury look to the short-term market. tom: you live in there. brad: exactly. towasn't an inability finance long-term that killed the lehman brothers. it was the loss -- tom: the loss of trust. i will come out with a c minus on this discussion as well. most interesting moment, an important

conversation. they are important conversations throughout the morning as we go to jackson hole at 10:00 a.m. ♪

the foreign exchange market will move at 10:00 a.m. that is guaranteed. there are headlines across bloomberg right now. sterling pulling back. the mexican peso showing the glory of emerging markets. francine? francine: coming up shortly, it is bloomberg go. alix is on hand in new york. what do you have today? we are three hours away from janet yellen herself finally speaking. we haven't heard from her since before breaks it. before that, we have a lot of speakers to get through. then it is lockhart and robert kaplan. all of the speakers will be on the show talking about the feature of monetary policy. the question is, will we hear from the professor yellen at 10:00? this is great.

i think i will leave radio to listen to "bloomberg " this morning. right now, let's go to jackson hole. michael, i have to begin by congratulating you on as their george's interview. she is a d center. will there be dissent -- disstenter. will there be dissent? a bigl: there is question, what do you doing a monetary policy isn't working? wall street has one interest, that is the short-term. the fed is thinking about the medium and long-term when you're trying to boost inflation by keeping rates low. tom: my most important interview of the day said you of let the debate. that includes today the regime paper came out. does anyone know how to spell regime in jackson hole? be fronthis ideas will and center. you can't make forecasts anymore

because the models aren't working. other -- anymore because the models aren't working. there are others who say they still can. great work out there very early in the morning. now let's get to the bloomberg view. if you are janet yellen, what bloomberg function should you be looking at? >> you were just talking about that company treasuries live in the short-term money market. if you look at what libor has done. look at this chart. of theare thinking background, your seen a massive monetary policy tightening. 2 basis points today, i bet you the fed models don't take that into account. it is all to do with that. francine: she should be arguing they start normalizing? mark: i think so. do we get the academic yellen,

or the federal reserve president yellen? i blame ben bernanke. before that, jackson hole was for academics. he started getting policy guidance at jackson hole. i would give the most boring speech you can in the world. they don't really know what is going on. tom: market gilbert, i want to congratulate you on your recent columns which really synthesize the cacophony of ideas we are working in. i know you're already working on sunday and monday. what are you focused on? what will you be thinking about getting to the column on monday? mark: i am worried the expectations for fiscal stimulus -- tom: well, yeah. mark: that is gotten out of control. tom: i think that is brilliant. do we need an extended runway at heathrow? definitely need to reset public policy. i think on the west side, you

guys all admit that you have third world infrastructure and politics that don't want to give these roads maintenance. i think that is a massive, massive task with a face. how to persuade both houses you need to fund your economy. tom: mark gilbert, thank you very much. francine, this is fun. this is exciting. i will be looking at the japanese yen as get towards 10:00. francine: i will be looking at gold. you can look at any market. expectations of, of course, this speech in three hours. tom: that was part of our conversation. later this morning, that happens. ♪

david: the calm before the

volatility dominates markets. investors wait for federal reserve chair janet yellen. alix: making their case for a high connection month. traders begin to price in september. jonathan: a pressured governing -- governor kuroda looks to get a warm welcoming. we're live from new york. david is on vacation. yellen is here. arrived.as no action in these markets, we wait for that speech. implied% is now the percentage of a rate hike in september. that is double in two weeks. did have an impact on fed rate hike expectation. understand that we have gradually moved that. you wonder what comes from this. speaking to people in london, what they want from toy