developments around the world. we have the bricks, the wonderful bricks, brazil, russia, india, china. india is the only sort of okay one. that's important. that was a macroeconomic cast lift to the volatility that has rippled back on to shores. are we going to be resilient to that? do we have a good shot at it? for sure. a lot of domestic strength. i think when the tpepd decides now is the time for that progress, it matters very much to whether the markets say this is the right and good policy or this is a policy mistake. i did a survey. their median was 20%. in line with the broader market

pricing. then i asked, how would markets react if they did? the universal a answer is it would be a policy mistake. >> what do you point to? >> even lower than 20%. maybe 10 or 15. >> i'm considerably higher than 20%. but i don't have a particular number in approximate mind. >> i'm with john. i think it's probably less than 50/50 given all the developments julia talked about. but higher. >> do you all agree based on what we know now before the end of the year still remains greater than 52% chance? >> i do. >> i think it's about 50/50. >> i think it's slightly more than 50% on the assumption that there is some recovery in the

markets. >> yeah. as long as things stabilize. i think what we have all agreed with is that the important thing about this volatility is the macro signal behind it. and that's what,kdç they are g to be looking at. what we will learn about that turmoil in china. and if that proves it is either impacting the globe less th23ñ3e thought or not transferring here, then, yes, they go. and to the greater extend it is slowing us. >> when i came to washington and started covering the fed in 1987, the fed basically said nothing. that was the thing about being at the wall street journal. we had gone a long way. as a former reporter, i'm in favor of transparency. but as i look a at communications today, sometimes

they are a little bit of a headache. we won't want to be predictable, but it will be gradual. >> i'm not sure they said that one. they would be happy to be predictable but predictions are deterministic mechanical. >> like i said. it goes to my point. so is this just the world in which we live. it is hard to make conditional statements if the world unfolds the way we do, this is our plan but don't hold us to it if the world changes. or could they have done a better job of framing that conversation? particularly, have all the conversations from all the members of the f1 c mailing in their votes by press release or press interview, is that making things berth because we see the debate or worsej]y because it

suggests the meeting is pro formative. >> i want to pick up your last point. members of the committee seem to have made up their minds before they come to the meeting. i haven't heard any of these people say, this is a tough call. because here's how i'm leading the economy. where will it be to the fed mandate. i have never heard that phrase. it bothers me as someone who was executive of that committee for 15 years and sat on it another eight. it is not always informative but it can be. you have to listen to each other. that's this precommitment. and then changing your mind every month or two when a new

piece of data come out. yeah, september. well, not so sure now. well, maybe. i don't think that's helpful. economic conditionality as well as it should. it just focusing on essentially the left side of the reaction, as opposed to what you're going to do with interest rates rather than the right side. >> do you think their communication will have been as good as possible? >> i think there's room for improvement. i think i agree with the point that the data dependency has -- there was general conclusion that giving too determineistic a complacency. i agree with that proposition. i think the pendulum has swung

too far to the other side where they are inadvertently stoking the market.6pañ it is a combination of the way they are publicly react to go different data going after the employment report and saying that's a pretty good number. that's not helpful. and the meeting we can go live. well, if the number is good tomorrow we can go. i don't think that will be the nature of the deliberation. it will be looking at the fullness of the accumulated progress, the outlook, the risks to the outlook. so i think the tone of the framing of the reaction function hasn't been optimal and has

inadvertently led to where they have caused market volatility that might make it difficult for them to announce a decision. somewhere in between there's a median, you can provide guidance, this is how we're thinking. give us a little runway to anticipate that and perhaps not -- the dollar is is not spiking ahead of every fed meeting. >> i think there's some people who say we are nearer to the point where it just doesn't make sense. the anticipation of the fed is worse than the reality. we know that everybody is nervous about what markets are going to do when the fed finally pushes the button. people who lived through 1994 with when the fed raised rates and thought they telegraphed it and surprised markets and we ended up with a financial crisis in mexico and orange county and

all of that. i understand why they want to be cautious. other people look at history and don't want to go down as the federal reserve who repeated the mistakes of 1937 and just at the wrong moment. but that said, is is there a case, that okay, 5.3% unemployment, zero% interest rates are too low. the markets have been frothing at the mouth as the fed is going to do this. wouldn't it be better if the fed got into it. so people got used to the fact that zero interest rates are not a permanent condition? >> there might be something to that. i suspect that it won't move just to move. that's not generally the way they work. another way of thinking about it is the precise timing of the initial move is not important to the side of the economy. it is some folks who deal at

that end of short-term financial markets. so the particulars of doing it now as opposed to a month from now or two months from now might make sense. but i don't think that argument will be -- that's a footnote, i believe. it's the discussion of where the economy is going to be in one to three years. >> why so much emphasis? we all said that's important. what's the reason for that? >> that's the statement about how they believe the economists think. that chair yellen at the san francisco fed earlier this year gave a nice description of this. that the economy, the interest rates, financial conditions consistent with some continued progress in the labor market and with inflation getting back.

that is likely to be a gradual path. if you say about that, we would all love it if the economy boomed. then obviously it will will tighten faster. but we haven't seen that happen. >> we don't want people to think we are going to get interest rates back to normal, whatever, 3.5% because they would behave accordingly and that would have bad effects. >> yes. thank you. >> joe? >> at a point where we talk about zero and this extremely accomodative. i don't think we know -- certainly with the labor market it appears to be accomodative. it is is not accomodative when we look at inflation. if we look around the world we used to think -- okay. it's lagging. we look around the world. now we know zero isn't the lower bound. we have a number of central

banks at negative rates. we have a situation where there is an exchange rate mechanism that is unusual because of the die vergens. you do have or steps, which do feedback into the economy on export growth, on inflation, through a number of channels. so it is a very difficult time to calibrate and thisú presumption that zero is this crazy accomodative rate, that's an assumption based on past;j;ñ history, which may or may not be applicable. i think in the speech you just referenced, she framed it as the true funds rate right now. we don't really know. we know it's pretty low. as zero in the past, the housing

market could have been on fire. you would have had a lot of froth in the financial markets. it would have been a very different world in the past. we are muddling along at 2% growth. labor market, thumbs up for show. but no wage growth yet. it isn't quite operational yet. we think we're getting closement we hope we're getting close. so zero may not be the zero of yesteryear. that's something they have to grapple with right now. >> don and i were in china last week. it is amusing to hear that the chinese hadn't updated their talking point. they are talking about spillover from the u.s. to china. spillover is a two-way street if you don't mind the mixed metaphor. does it really affect unemployment and inflation in the united states a lot if china slows a little bit?

or is it that it's not just china, it's china, brazil and russia. they should worry what will have ill effects on ma labor a that and indonesia. what do you think they ought to be thinking about? >> all the above is allowed. >> in addition to the year term interest rate, an interesting point to know is where the committee thinks they're heading after a few years and the fed funds rate has gone down. 4.25% to 3.5%. that's the median. it might have something to go further. this reflects a global move towards lower interest rates. >> no, the reasons to worry

about the rest of the world is not that the federal reserve is china but that what happens in brazil and china affects the u.s. economy. exports have grown over time. compared to where they were 30 years ago. so it matters a bit more. they are still relatively close. so absolutely it matters. declines in stock prices will probably reduce investments and make wcs÷consumption. that will hurt u.s. exporters. a lot of investment goods. and the dollar is going to hurt our export. that takes time to show up.

>> that is an important point. that and the economic story thing in a number of these countries. it feeds through to the u.s. economy over quite a while. so we won't learn much about that next month either or even the next month what the full import is. >> we're at the beginning of september now. back to the beginning of july. we say what have we learned since the beginning of july? your point, i got it, joe, whatever we thought about the rest of the world, it looks worse today than it did two months ago. >>. >> it was always a risk. it is is now very much in the data. brazil, second is quarter was announced do weeks ago or a week ago. >> not to mention canada.

>> canada is in a recession. chinese kos it pmi lowest since 2009. these are hard data points where it was a nebulous risk that we worried about. now it's data we can see. >> as i said at the beginning, when the fed cut interest rates to zero, it decided that wasn't the most it could do. it engaged in several rounds of lots and lots of bonds. at the moment they are holding that portfolio steady by reinvesting when the bond matures. could you just explain for people who is the state of the fed's current thinking or what they have told us about what they are going to do with the portfolio. i'll ask whether you think they ought to do something different. >> well, the feds announced broad outlines or principles they will follow with the portfolio as things move

forward. and i think the main thing they rates, raising rates or lowering rates. that tells you what they are trying to do to financial conditions. and they ultimately obviously would like to reduce the portfolio back to more normal sizes. they would like that to just be done as smooth and with limited disruption as possible. so that that isn't a signal about policy. that's more of a technical exercise helping them get back to where they would like to be. that's the broad outlook. >> some people think the fed has to sell off. if they bought bonds to lower my mortgage rate, when they sell them, they will push mortgage rates up. that's not the way the fed looks at it. what's wrong with that? >> i think there is something to that, roger.

the fed portfolio holdings pushed down interest rates through a signaling of our intent. and that they can take care of with communication. but also just having just the demand of taking those bonds, particularly long maturity bonds off the market, pushed down long-termnídvç premium. i think as the fed's portfolio decline, it should rise. to what is a really clear thing. but i think the direction is pretty clear. if it's just very gradual it will hardly be noticeable. but it will be up. if they sold in size outright, i think you would have a very substantial effect on interest rates. >> consequently, you think that's unlikely. >> exactly. that's what i was going to do. i don't think they will let the portfolio run off until they get

the federal funds up some maybe towards 1%. because what they are worried about, what they should worry about is start raising rates and things aren't as good as we thought. or there's a shock from outside the u.s. we need to lower rates to push them against it. you have to get rates up there to do that. they will want to get the short-term rates up a good bit before they start putting pressure on long term by letting the portfolio run off. if it were my choice, it would be nine months, a year or so after the beginning before i even let it run off. >> do you have a difference of view of what they should do than what they are doing? >> so, there are two elements. one is a sizable portfolio. they arel+ciñ clear they will n

selling bonds at all for five or more years. >> does it pose any problem? >> no, i don't think it does. they heading when they do run off as they are prepaid or mature. there is a statement where they said they want to get as closep as possible, consistent with monetary policy, operating effectively or whatever, which is kind of a big statement. but it sounds like they want to get close to where they are before. it doesn't say that precisely. so it leaves room for a larger portfolio. personally i would argue they should have a large portfolio. this is 4 trillion. instead of going back to 1 trillion, why 2 trillion wouldn't be a good number. these are safe assets that

people want to hold. i don't see any reason to make them scarce. there is good the fed can provide. they are helping transactions. >> the assets being the federal reserve. >> yeah. >> they told the bonds. instead, they give people short-term liquid assets. >> the fed are the ultimate transactions. they are used to running the economy on a tiny amount of reserves, which seems crazy in he retro expect to me. banks hold them and feel they have a safe asset and they don't have to scramble to turn them over really fast. it makes a lot more sense to run the economy that way. close they want to go yet.

>> they have announced they are going to steady operating procedures, decide where they should go. and that will then determine whether they go back to where they were. if they say, no, no, no. >> i suspect they don't agree on where they want to go. >> that's several years down the road now. you talk about the fed forecasting two years from now. that's hard. what are things going to be like six years from now. they have time to steady that. and they said they are steadying that. i think well in advance of adopting a normalized stance they will make clear what that is likely to be. no more reserves than they need for whatever operating procedure they settle on. that's nearly a totalogy. >> does the fed care whether it has 2 trillion or 4 trillion or

1 trillion? >> i think the market would care if the fed started selling assets, which they have already taken off the table. i think one of the unknowns is how well they are going to be able to control short-term interest rates, how well they target. how big the reverse repo facility will have to be to control short-term interest rates in late of the fact that the pal sheet is so large. >> just to translate, the way they used to move interest rates is not going to work with a big balance sheet. so they have to adopt new tools and they have been playing with those new tools, experimenting. >> i think testing is the word. >> testing new tools because it do in real life. so that'scyi5 one question. >> that is one question. the testing has gone well. they think they understand the mechanics. they have some sense the dynamics. but we actually have to raise

the target rate, see whether it lands in the target they set. how does that affect funding markets. these are the plumbing questions. and the plumbing questions will have influence on how they measure longer policy.-dkw they don't necessarily need to make decisions. they can push that down the road, get the short-term rates up to a comfortable level and make those decisions later. i think that's where they want to go. we will have to try and see. one, it could be they don't work as well. then you need to think about reducing your balance sheet and getting liquidity absorbed that way. or there is, for whatever reason, political sensitivities to paying this much interesting

to banks or having a reverse repo facility with money market funds. it's hard to predict. >> beyond actually how they manage to control interest rates, again, i think a lot of people think, god, the market must benhz terrifying because t fed owns so many bonds. or something this ó allows the federal government to do a lot more deficit spending than it would otherwise. does the fact that the fed have such a big portfolio have any implications for the markets that you take seriously? >> not really. on a day to day basis there are other increased volatility than we have had in the past.fy that is an unrelated issue or tan general challengely related. regulations, all these question

influencing market liquidity and dynamics. that matters very much. but in general, i don't think the fact that it is holding 4 trillion in assets really affects day-to-day market functioning. >> we've been talking mostly and and growth because those are the major responsibilities of the federal reserve. but we know the financial stability is also a concern of the government and a concern of the federal reserve. and the kind of conventional explanation, janet yellen and others is, okay, we're going to use interest rates differently and steer the economy towards this wonderful place of maximum employment and stable prices. and if we look at the risks about financial stabilities, we're going to use all these other things thatxbi/x we've coe call macro credentials.

those people that think we should raise interest rates above all are making a mistake because we can use the tools. how will equipped is the fed and the u.s. in general to use these new fangeled macro tools to avoid a repeat crisis? >> not as well equipped as we think they should be. so i agree with chair yellen and many others that have said that raising interest rates ought to be the last line of defense for financial stability, steering away from the inflation target, from the employment target. but it is there and if the other stuff fails, then you couldq8te a worse situation, like the global financial crisis if you don't do something about it. but we have created in dodd frank and in regulation a lot of new tools on financial stability, in particular capital and liquidity for banks and bank holding companies, designated

large nonbank institutions, systemically important, subject to additional scrutiny and additional regulations. so we've done a lot. but i do worry that we haven't done enough and in particular, i worry about the housing market. so if you think about where financial crises have come and financial cycles have come in the united states and many other places, it's through housing. think about the '80s, late '80s, through 2007, 2008 was housing crisis. we basically don't have tools directly target the housing market the way many other countries, including the uk, their financial -- we on the financial policy committee can raise and lower loan to value ratios, loan to income ratios if we think there's a bubble developing or a recession

developing, we could lower things to make -- to make credit easier to get in the residential housing market. and there's nothing like that in the u.s. so i think where our tools are limited and the last lineáéb7d defense is further towards monetary policy than i would like it to be because of that. and i worry about the decision j making, also. the fnlt stability oversight council has ten or so agencies on it. it's chaired by the secretary of the treasury. i'm not sure if is a good mechanism, governance mechanism for making countercyclical financial macro prudential policy. i think the secretary will be quite conflicted and certainly in even numbered leap years. it looks like these campaigns began a year before that. and the other agencies don't

have the same financial stability focus that the fed has. kwlompt. improvement. >> there's sort of two things to think about that don was talking about. there is general resilience in the financial system, lots of capital. i think you'd agree there's been a great deal of progress making everybody morrow bust. >> and the bank holding companies. >> let's suppose you've made the system more resilient but a bubble appears. proactively -- and that's countercyclical. that's where the decision making over a wide range of bodies, the tools that that wide range of bodies hasqlih aren't as good

they should be. so responding on the fly as something happens is more difficult here than in many countries. so i certainly agree with don on both those points. >> ifwq:qk that's the case, we to be very conservative in our baseline setting of things like mortgage loan to value ratios from the start, presumably, i don't know if we're where we should be there. >> that is a good point. >> and i would like to make the point that even if you did think that monetary policy should be used, remember that the worst part of the housing bubble developed very close to the peak of the interest rate cycle. a lot of the excessive credit layering and derivatives developments that prove so problematic for banks happened close to the peak of the

interest rate cycle. so it's not necessarily the monetary policy mechanism is affect, anyway, in controlling bubbles. you really do need something that's far more microoriented towards the particular structure or market that you're focus on and housing is obviously dshg and the problem is with housing, of course, is that it's very politically sensitive. how you develop that is impressive. >> well done. time it's a really big problem. >> -- the first time they did something, they set it high enough so it didn't affect anybody, right? >> so what we did is try and set it high enough so that there wasn't much effect and it was basically insurance against the deterioration and credit standards as house prices rose

relative to incomes and other prices. but i was surprised, anyway, at how little pushback there was from the political environment in the uk to this action. i thought we were going to hear more about first time home buyers and things like that. and i think part of it was setups. though there were a series of speeches by deputy governor and governor and others worried about the house price situation and what was developing outside london. and i think that -- and enunciating why it might be a concern. and then i think the action we took was pretty modest relative to that concern and pretty proportional. it worked out pretty well. >> we made the point that john did, as well, that productivity

growth in this economy has been very disappointing want so that output per hour of work has grown very slowly. &t you think that's something the fed can do anything about, other than observe it and talk about it? or is that the -- of somewhere else, the rest of the government or -- >> one point that yennen has made, which is unorthodox that i don't agree with is to the extent that they can let the recovery develop some strong legs and really let the economy gain some momentum and strength, you can argue that would lead you to a better place with better productivity. so it really is important to let that mature and potentially give you some spill over effects to things like to the extent that we think there's a hangover risk

aversion, either for firms or people and you let that fade away enough to where they're taking risks with starting new firms, allowing the recovery to gain momentum can lead you to a better place in productivity. >> i suppose the question i wish to pose is how could one be that independent and looking at the pc at 1.2 and provide a prescription which accounts for -- i'm referring to chair stan fisher which i suppose ties

to the question to mr. foust, looking at your paper which was presented last week. how dow reconcile the necessity on the part of policymakers to be somewhat, shall we say humble, but at the same time call for normalization? which framework are you looking at? and how could you explain the relation function of the fed is the fed was capturing development, i'm referring to global development in the framework. which program temperature do you look at? >> john, do you want tohg3óñ tah that? >> sure. there is a lot of discussion aì% symposium about the relationship between the stateñ of labor market and when that starts to provide upward pressure on inflation to get inflation back to target.

but i think the basic story that the fomc will have to be grappling with is these issues out with that kicked off the session nicely with. we need to be looking one and two years down the road. do we believe that if the labor market continues to improve at the rate it's improved for several years that a year or two down the rooz that depression will have emerged? and then when you say are they going to normalize in september or begin to normalize in september, that's a difference statement than is 50 basis points better than 5? in other words, that's one ste< from extremely accommodative to somewhat less so. and so if they do normalize -- this is just the framework.

i'm not here saying what they should do. it will be because we believe that the built in momentum and the labor market, they're confident that will continue and they're confident that that will over time provide this pressure. now, when inflation is at 1.2 or inflation is at 28, if that's due to oil prices, for example -- what's that? >> 1.2 is corn. so they have made a policy on of working through that. that is the framework. >> so the question on international was where does international fit in there reaction, function?g@ie >> urnçright. so can i just make one point on

this is, to me, where the timing does matter. the message has to add up. if you're telling me we're putting that in a framework that we have just written about doesn't work and the data are at the lows and going down and i'm going to stay it, anyway, that sends vary hawkish message about your reaction function. you can say gradual all you want. i've just learn the fed's version of data dependance is not what i thought. so it does matter, but the data are building your case for you and you deliver the message at the right time. i think the standard academic way of looking at timing doesn't matter, it's all about the past, the timing matters very much to rt%÷ take it.

on the international side, this is a tricky thing. the fed has given us this stuff% and this is to your point about transparency and do we have too much and does it give us a headache? it's given us a summary of market projections, it's very to frame their decision. but then there's all this stuff outside. the summary of economic projections is very much anywhere. unemployment will go through the natural rate and we're%&!ñ goin have inflation coming back up to target. as we do so, we're going to gradually normalize rates. but there are all these things outside of it9xk that actually affect -- i think your term is disperate -- >> confoundingñ-i dynamics. >> the way i describe it as pragmatic real world banking is taking these factors into

effect. they say they're taking it into %p are doing that. they have a lot of excellenty6÷ people on the staff that suggests-&&#ñ how t/z!pñ provi inflation, what are the things that they're watching? bp4+hat is why i put very low o central bank would raise rates after a massive shock to thenaxx financial markets? pretty big rumble and inflation is at lows. why would you do it?v⌜vñ-2epj >> so i wanted to weigh ñn on %r julia's side of this.

it seems to me actually quite the markets so we stopped. i think we need to take seriously the possibility that the market is telling you differently, the equit#fo sell-f on the other. ç significant whackness, but if things do get badtícsc enough, others who are at or at best if very small. you should expect markets to be extremely sensitive to market risks. i worry that the committee is

taking that seriously enough. how attentive are you to thoseç risks as well as more broadly in a@a the board starts talking about their/e0 base case in the medi term. so i wanted to ask whether they agree with the sentiments. >> one reason is to try and as somebody said, this is about trying to figure out what the markets are saying about the underlying economies and the is inflationary would feedback on the u.s. so a couple percentage points

slowing in china or a decline in ch se, would have very little effect on the u.s. but you see broader disinflationary forces at work. and i guess one would hope that by waiting a little while, you could process better what the -- how they would be back on to the u.s. so that would be a reason to wait at least a little bit. i agree. but it's not about the market movements, per se. it's not what they're saying about what's going on underneath. >> just a couple of small wrinkles to that. it's the underlying database what it says about the underlying economy. should have add two little bits. when you think about the market volatility, i don't think you

quiesence markets before we'll do anything. sozjpnñ when the fundamental do there will be marketwr3 turbul fairley close in the rearview mirror. there is all the time. so that can't be the driver of policy. deciding what[t7÷ is the financ market volatility telling you about the economy performing? to reemgzyw much will we learn about whether this?,dáq] going to feed into the u.s.jud;ç we'll learn very much about that few months. áthat's what makes the decision a difficult one and that is why don and i are higher decision. why they'll /tñhave, i'mjy 6rrr

vigorous discussion.k:5r(t&háhp% >> one moreí1lt thing that has discussed is the other side of the weakness that might be strength within the u.s.2z[ q% some n÷ markets, it would still be$4tw súhhzsf(úzdñwould still be$4tw spending and capital &háhp &hc% h @r(t&hú c% than they thought it was going  when they -- certai:t going %s of circumstances where the u.s. economy is x a '=ñ chinaúfcx and!cg3vñ

brazil. >> because that might take a couple ofgs>]ujj of a percenkñç xlóqnu slack. )pr(t&háhp &hc% grcc everyone seems to believe k for press[s;"conference. do you think if the indicators line upm;oñ by october that the >> i think4/u$ey would'xgç be a it would be better to send the

chair out qk there and explain m ñ ask the panel, what about the risks ofw h volatility. and pretty soonl the forward two-year notes at 0.2 today

income. this and startspc to reach for higñ yield.oid borrowers. >> i thinkotñ they would feel t this would be something that if they dealt with it in december or even october if i÷(k was thaó strong, you know,;7bnh things wouldn't have that muchfdqm tim get carried away. >> so how big a risk is that the fed waites and you get all that ñstuff?c sent>,]ñ by delaying in septemb even if they do tighten in -+3 and/ay thea+÷5v&vo stromgest tn market volatility and market i@mf÷q6x

volatility. so, you lsqvvknow, when stock,zs are down 10% relative/cv!z toxg they were ten months ago, that is a bad signal for the future z kñ#wuár.$2j÷zl#z i don't think if you delay on y"'suit-r' it on our own úç moving in the direction we thought, we don'trvp have 3j the ?

they'd but the down side is bias )jñ½ you've got'@ee to remove that be you -- you ÷c÷sñknow,0[cpu you before. ìáhp &hc% september hat we're scared about markets. and i don't think that is what and i don't think that is what janet would say in her press&ñp nñ-ñ* time and we'll just back away. it's going to be, you know, progress on our mandates isn't quite what we expected andba6=ñe got etr(t&háhp &hc%sks thakn noj market lbt;ñvolatility,vg"f bu global economy. we would like to gather a little more information. it's not going to be never.

ñ what everybody,n2çñ said everyb much inflation or going the other way.xaao= thele risc! are more concerning becaused

saypy -- i think it'shf&ñq all these changes in the data and may jx telling us ab,ów theñkè side of the 8 over the next couple&áapp month you see numbers that say we didn't fall off the table and then you move. >> the one holding the piece of paper, stand up with the mike in >> thank you. i'll take just a second. this is cindy walsh. main street really does kind of understand what's going on. so i'm going to just give a main street perspective very quicklyñ

participation in the workforce is now at 61% lower than in thes 1960s. so unemployment is actually probably closer to 20%.0 inflation, it seems so low because so much of it is placed low because sñ competition between natural gas1@zñ and oil. that's temporary. of cou dealing with health and food issues that are spiraling almost the interest rate;>!, we're q o that that's being b umóujrjz specifically through u.s. treasury bonds at the federal, state and local level o cf1 o leveraged to such a height, that we are almost sure that there's going to be a bond market class

because there's going to be an bond investments. inflation is now probably> so can you -- i hear -- >> so my question is, we would like to hear you address it from those perspectives, because that is the perspective that main dealing more with what the effect of wall street would be. >> let me take a cut at that. first of all, i think we would disagree with the numbers you use, though i am certain that many people think inflation isf

higher than this labor statistics says. i think that -- i'd like to panel to take one point that you made. whether main street is concerned about bond market fund, i'm not convinced. but a lot of people in financial regulatory circles are. and so one concern is after all this time ofkcíd& this energy o central banks all around the world holding down interest rates and making bondz bond funds, you know, so people reaching for yield and all that, is there a risk somehow that once the fed makes a small step towards normalization, there's some kind of really big problem? is that something we're worrying about? was zero. that is such a big reaction that it threatens the financial stability of the united states or the world economy.

i think bond markets are likely to react in part because there are a group of people out there who say they'll never raise rates, that inflation is too low. they'll always find an excuse not the raise. i'd be surprised if bont markets didn't rise and markets-gf'o ar as liquid. but bond price -- yeah, bond prices didn't fall and rates didn't rise. but ugs r i think the fed can't let itself be frozen in those headlights. has to do the best it can to talk about gradual thereafter. if that's a true view of what it's going to do and then they can take the steps that needs to take and work on the bond market volatility and what not through other means.

>> hire in the front. rich, can you stand up so that she can see you? please. >> a question abouthkjuñ china this global volatility, if i may, because he he just went to china. we talk about a couple reasons, u.s. economy for other reasons. but i think it's the mid point mechanism. do you think what china put the role in china play this time in this global sell off is purely economy problem or it is related to their policy transparency that puts the uncertainty?

and if china governmenti>nn rea play a role here, what should they do next? >> i think both of the above. so i think people were concerned that chinese

conference until friday. so if you're going to change your exchange rate regime, i think you need to h3ghs÷ a very clear story about what you're doing and why you're doing it. i know the chinese don't have a lot of experience doing this because they don't have a domestic press the way the u.s. and europe havera6 a domestic ps pushing them all the time on what they're doing and why. but they're playing in a globalo think improvement in flv"r(t&há% communication clarification ofj framework and more immediacy of essential. >> can ik3la add to that? i think that's an incredible question. you put your finger on what one of the biggest changes over the last two months has been is the perception of the chinese policymakers. so we have lots of data out of

china on things like the credit situation that's been developing. there's been a lot of concerns for the last couple of years about how much credit growth there has been, the shadow banking system, you know, ever more credit with ever less gdp. and we are always worried about china as a risk and the pushback has always been whether it's from investors or policymakers has been, oh, but it's china. they have a plan. it's a centrally planned, it's a new, strong regime, centrally planned government, they'll be able to manage it. and what the news has been is that actually they don't have a plan. and the plan xhangs from week to week. there is a very big change in perception. so i think for me, a lot of the volatility and the level change has been this is a bigger risk

than we realize. so it's taking that into -- now it's difficult because when you're in a credit crunch, you have to throw different things out there and see where it works. there's not a clear cut playbook, especially out of china. but its nature, you're going to look a little bit lost at times. the u.s. did, europe did. and so we're going to be in this process, i think, for a while as they figure out what the plan is and what is effective. >> rich miller of bloomberg, thank you. >> i was wondering about december, the lack of liquidity in the markets, will that affect the decision? too, i wanted to pick up on something julia said about the communication process going forward. i would be interested in hearing what other people say about how they sort of don'tw@lñ go so deterministic as they were the last time, but don't get the market carnage in orange county, mexico, as david alluded to to

'94, '95. as julia said, it seems difficult. i think react to the latest unemployment. allow are they going to communicate? >> so the first question is december. >> i'd be surprised if that held them back. so especially if they, in their october statement, for example, gave a pretty big clue that it was coming in december, the markets would already build it in. and if they really think they need to move, i would hope that -- and i'll bet all these vvz,hpp1us

>> it's going to be a great time. and how do you management this vfç >> i think that's difficult and that's the sweet spot that's attempting to hit and it's difficult.&hr i think on sth data dependance, sometimes that makes it seem as if the fomc says we're on the edge of our seat all the time about ready to tip one way or the other. but that's not the case. i think they need to communicate more effectively that its outlook dependent and the outlook changes, the outlook for a year to three in the future changes rather gradually. and so it's affected by friday's

jobs report. nothing is chiselled in stone. sometimes the messageawv6g come across as if they're skittish or something. it's outlook dependent, the outlook changesnfnpñ gradually most of the time. in good times, you know, a little bit of information comes in, you marmgally change the outlook that marginally changes what the policy could be. and i'd like to see the communication move more in that direction because it conveys, julia said earlier, the market has an impression. i don't think they behave that way, julia said. and that's what we're talking about, conveying more of this outlook.

>>nw8qw thank you. i'm nick farmer. can you speak to changing the demographics, changing the fact that the u.s. corporations sell more and more of their products overs overseas, artificial intelligence, are these things impacting the interest rate productivity labor labor issues? does the fed take this into account? what are they doing about these issues? >> yeah. i can throw one more piece in. which is so some people have been arguing that a number of things which you cited demographics, productivity are causing the interest rate the economy needs in equilibrium to go down. i think the fomc itself has seen

that. if you look at the long range projections, it's come down from about 4.25 to 3..5 and as i said earlier, it may have a bit further to go. and that is more of a long-term thing. let me add one big thing that you didn't mention which i do a lot of work on.. and that is the behavior of foreign countries and just the foreign government in terms of saving and investments. it used to be that developing countries would borrow for development and then they would borrow from us and they would invest and we would export to them and we would grow. there were problems with that strategy. about ten yearsrójo ago after t crisis, kins really made a strategy. and what you see now is countries don't borrow for

development as on the scale they did before and, in fact, on average emerging markets, thev6a r vast net lenders. we have a mad of money coming in and going out that we never had before. that is contributed to low interest rates in the u.s. it is also holding the recovery back to some extent. normally in a recession, when we have a trade deficit going into the recession, it goes away during the recession. maybe it comes back gradually later. we only lost half of on our trade deficit in this recession and it's starting to come back already quite a bit. so this is a change. >> wuven of the changes we've seen out of china is they are now runningw down their fx reserves for the first time in

25 years. >> the key thing is, it's a bad idea for this year, absolutely, but that strikes me as market volatility that's probably not going to persist. >> or a change in exchange rate. >> et hasn't exchanged. >> you would like to make one point on the demographics. there is a debate and a discussion about whether that has led to lower national rates of unemployment. you want to get that because there is less turnover, people are in their jobs longer. we think of the national rate as that level of churn in the labor market. it might be lower because of demographics in part.. and, therefore, you might have more flack than you thought and we might see that in the summer of economic projections that you have a lower natural rate because of in terms of

demographic issues. >> and in demographic issues name imply that the unemployment rate isn't as good as a single summary statistic as it used to be. but we have to think more about labor force participation, especially as it interacts with the deep recession we've had. you know, are some of the -- are some of the folks that left the labor market perhaps retiring early because they lost their job and didn't see prospects? if the economy is more healthy, do they come back and work for a while? those are important questions. in both, you ask that the fed think about these and deal with them adequately. the very complicated topic. being discussed, you can see it even in the minutes and the speeches of the fomc members and had working papers. does anybody have a great handle

on those? okn. that we have yet to see. they're difficult issues about the interaction between long-term changes in the economy and one that may be precipitated by the financial crisis that will go away.he1zñ >> oh, please join me in thanking our panel. if there are paper cups at your seats, we would appreciate it if you would take them and put them in the recycling containers in the back. >> thank you very much. wednesday, hillary clinton talk bes the agreement at the brookings institution. our live coverage begins at 9:00 a.m. on c-span2. later, opponents of the rally will be at the capital.

ted cruz and donald trump are among the speakers at that event that starts at 1:00 p.m. eastern time. we have it live here on c-span3. a signature feature of book tv is our all day coverage of festivals from across the country. here is our schedule. near the end of september, we're in new york for the brooklyn book festival, celebrating its 10th year. in early october, the southern festival of books in nashville. the weekend after that, were live from austin for the texas book festival. and near the end of the month, we'll be covering two book festivals in the same weekend. from our nation's heartland, it's the wisconsin book festival in madison and back on the east coast, the boston book festival. at the start of november, we're be in portland, oregon, for wordstock. followed by the national book awards from new york city. at the end of november, we're live for the 18th year in a row from florida for the miami book

fair international. that is a few of the fairs and festivals this fall pp on c-span2's book tv. now, the u.s. between the u.s. and british militaries at the atlantic council here in washington. this is an hour and a half. >> it's a great honor for me to introduce to you my friend, penny mordaunt. her official duties include operations, operation policy, legal matters, personnel policy. and if that is not enough, other responsibilities include cyber, relations with iran and ireland and latin america.

after graduating from university, penny began a very successful career in business and communications working in the private and public charitable sectors. she was communications director for the kensington and chelsea council. she supported british truckers during the french blockades. in 2006, she became director of diabetes uk, the largest patient organization in europe. if that wasn't enough, at the same time she founded her own media company which she ran successfully for many years before she successfully sold it off. in the world of politics and with high profile politicians under john major she was head of youth for the conservative party. she had a two-year spell as head of broadcasting under william hague.

she's even dipped her toe into the waters on this side of the atlantic having worked as head of foreign press for george w. bush's presidential campaign in 2000 and again in 2004. in the 2010 general election penny won the the seat with a 7200-vote majority and in parliament under the coalition government served on the european scrutiny committee, the defense select committee, and as chairman of the all-party groups for life science and for aging and older people.k'ga and as an indication of her rising star in autumn of 2013 she was appointed private secretary to the secretary of defense. 2014, penny was only the second won in 1957. the only woman to propose the loyal address in. reply to the queen's speech to f

the throne and in it she made reference to tweets about making more female involvement in parliament. and the speech was so good that the spectator magazine named it it the speech of the year for 2014 knocking out gordon brown. in 2015 she was reelected to parliament increasing her majority to over 10,500 and she assumed her current post in may 2015. she was involved in many charities including a patron of the victorian cross trust. and to me most importantly not only does she talk the talk, she walks the walk. she is a royal naval reservist acting as an active acting sub left tenant. so it's my great privilege and honor to introduce my friend, minister of state for the armed

forces. >> thank you very much, frank. good afternoon, thank you for coming along. i have a big to-do list, but first is to say thank you. i have been for some time a cheerleader of our atlantic alliance.c[ and having peaked behind the defense curtain now as minister for the armed forces, i understand how close, how integrated and how interoperable our partnership is. i'm confident that partnership will continue to strengthen as we face up to the same challenges and same enemies and defend our common national interests creating security in which freedom and as a consequence our citizens can thrive. i'm a cheerleader for the u.s. because of your energy and

he thus amp, your values. but most of all, because you are an example of enduring freedom and you are prepared to defend that freedom. i want to start by paying tribute to our armed forces. they have the best characteristics of our societyäñ duty, professionalism, self-service and sacrifice. they put the needs of other people before themselves and we have seen recent examples of that in the actions of f u.s. servicemen spencer stone, his friends and chris norman. in their actions on that french train a couple weeks ago. and a veteran of the afghan campaign who risked a lot in order to rescue his injured comrades, including a u.s. marine. but it is not just that heroism that makes our armed forces so formidable.rn+÷

it's their considerable skill. major david cooper of the royal army medical core, he's a reservist and veteran of the afghan campaign. in his day job, he's a paramedic in our national health service. a few months ago, responding as part of an air ambulance crew attended a roller coaster crash in southern england. on arrival, he noticed a young woman still trapped in one of the roller coaster cars way above his head, bleeding to death. without a second thought, he scaled the roller coaster and attended her applying techniques that he had learned and developed on the battlefield. he saved her life. our armed forces enrich our society, whether they are reservists or regulars, they give so much to their communities that they serve and

in the uk, i want to ensure that the connection between the public and our armed forces is strong and deep. and in recent times that bond has been weakened. the public have lost faith in our ability to act. they question the merits of iraq and afghanistan. and they want us never to run those kinds of campaigns again. the experiences for the general public of our armed forces are too often through the prism of pity and charity. our soldiers, sailors, airmen and women are seen as victims, traumatized by combat. not as the dedicated professionals they are. but also the public are troubled by what they see on their television screens. the appalling atrocities committed by isil and they hatei

the feeling of impotence they feel at not being able to stop an aid worker or a journalists being brutally murdered. so the challenge is to square those competing emotions. to show that we have learned from iraq and afghanistan. to show that we know we cannot fight other people's wars for them. but it is in our national interests to help them do so themselves. and we must clearly articulate that change. what our armed forces are for and to deepen the public's understanding of their mission and capability. then we can reset the relationship between our armed forces and the public. and we in the uk have much to oj learn from the u.s. in this respect. you really do understand how a military career can appeal to everyone in your society and the profile of military figures in

the u.s. reflects the esteem your public places on those who choose such a career. we in the uk have made some progress in this respect. during the last parliament we enshrined an armed forces covenant, which throws down the gauntlet to our institutions and our businesses to support the military. but more is needed to foster the focus and the kind of support which is so genuine and spontaneous in the u.s. e we must ensure every part of our society and every community in the uk feels ownership of our armed forces and pride in what they do. %ájáu(port for defe vital. not just in democratic support for spending and in military action, but also because our armed forces must represent and reflect the society they serve. the quality is an operational imperative for defense. it's not just best use of best talent and ensuring that all who

serve can thrive. it is much more than that. one of the first trips i took as minister for the armed forces was to go back to our officer training academy in kabul in afghanistan. i'd been there a couple years before where i had having graduated from darth mouth a a couple months before seen new women recruits who sought permission from every male member of their family in order to sign up and serve. training behind a brick wall. and at the time, i was very keen to point out to the afghan general in charge that it was probably a bad idea that the first time women and men who were going to fight alongside each other met was on the battlefield on an operation. and i was very proud to go back a few months ago to see the first 12 women officers pass out

of that academy. one of them winning the sword of honor that year. and when i asked that particular cadet what her motivation was for being such a trailblazer and wanting to serve in the armed forces, she said she wanted to shape and defend her country. i know how she felt. i want to shape and defend my country, and i want others to be able to do the same. so i think we need, in this day and age, a very good reason why if we're going to remain keeping close combat roles and other roles in armed forces cut off to women, we need a very good evidence-based reason why we're going to continue to do that. and i'm very glad this issue is being looked at both in the u.s.

and the uk. i want to salute the two women on completing their army ranger course. i know they are inspiration to ÷ women who serve in our armed forces and they are certainly an inspiration to me. they are an example of what make our armed forces so great. it's not our gadgets and gizmos, it's our people and reviews must place people at their heart. we must invest in them. at a time when man power costs are rising and we are trying to do more with our budget, it is a challenge to recruit and retain the best. and in the uk, we are bringing forward a new employment model. it's the widest review of terms and conditions in our armed forces since the second world war. it makes our offer fit for purpose in the here and now. ç last few days to talk about this and your work in a force for the future as you grapple@çé@q same issues as we are. but this investment in focus is

not just about recruitment and k tension. it also guarantees our interoperability, which resides in more than technical connectivity of hardware and software, but in the heads and uniform. it creates that critical factor, trust in one another. that, after all s what makes our alliance so special. most of the time, we are working alongside each other fighting shoulder to shoulder, whether it is deterring russian aggression or as part of the global coalition against isil or in 2÷% keeping our vital trade routes open. we value that, and we will continue to play our part. meeting our nato commitment of 2% gives us a budget that is growing in real terms every year for the next five years. and critically what we save in

defense through efficiency drives we get to reinvest in defense. we will invest in hardware and software in the our capability, but above all else, we must also invest in our people. they are the guarantor of the freedoms they protect. and in our reviews, we must ensure we are enabling them to achieve their full potential. only then when our enemies do their worst will we continue to be our best. as we look at our national security interests and fast-changing threats that e we face, there is one constant. the national security of the united kingdom is greatly enhanced by our relationship with you. and the security of the united states is enhanced by your relationship with us in nato and

with our allies around the world. and e with must continue to stand together to ensure the security, prosperity and freedom of all our people. thank you. >> i will take your card. thanks very much, everybody. i'm the editor of defense news. and member of the atlantic ni('ñ council and i'm honored to be here and to welcome you and to have this conversation with you. i'd like to start by asking you about, i think, one of the biggest things you guys are working on. you mentioned the strategic defense and security review. there's been an oath of silence taken by everybody who is associated with that. and as much as i'd like you to divulge all of the details of that review, i'm suspecting you may be reluctant to do that. but perhaps if i could ask you to sort of -- what are some of

the big issues you're struggling with and is this going to be another one of those reviews that like the like review is going to involve very large and significant trade offs? >> i have happy news that this sdsr is not going to be like the 2010 review. were facing a pretty dire situation. we had an overcommitted defense budget, which was twice the size of the defense budget. >> the so-called black hole. >> the black hole, yes. calculated at about 71 billion, hñe gap.x so -- and in addition to the problems with the budget, we had this tangle of programs and initiatives which really didn't make any sense. so that was a pretty brutal time.

and understandably, the focus on it was on k.i.t. and equipment. we had some very painful decisions to make. i think one of the criticisms of that period as well was that it wasn't particularly strategic for a strategic defense review. certainly when i was on the defense committee, that's one of the charges we levied. we are in a different position now. so we are now no longer that basket case. we are the top performing department. we have some really good initiatives that we've brought in. we have proper linkage between the military and the department structure and its political and what that means is that we can actually now be genuinely strategic. the other key thing about our defense reviews is that they're not just about defense.

they're across government. so the home office, the foreign office, department of international development, department of energy, they are just as much part of it as we are. and it is a very logical process. it starts by looking at our planning assumptions, which happily and compared to the last review actually reflect what we do. and we will then look at threatd address what we need to do to combat that. >> foundationally, as you look at u.k. forces are engaged in the isis campaign, u.k. forces around the world are shaping, playing a key role in the whole deterrent for russia in terms of the deployments that british forces are making over to the east. as you, somebody who's engaged in both operations but also sort of shaping the thinking of this, what are the foundational capabilities that u.k. forces need? what are the sort of sets of challenges that you're building this force to be able to address for the future? >> in terms of the review, we're not there yet. we're not looking at that aspect

of it. what we're looking at is what is in our national interest. so genuinely, i can't tell you what the answer to that is. we are clearly involved in less high profile but many more campaigns. currently in terms of our major operations, we're involved in 21 around the world. and there is a definite shift from the kinds of things that we've been doing in afghanistan to more capacity building, more training, preventing situations arising and deterring things. so that is now the norm of our operations. clearly we are very focused in working with the u.s. i think we're the second largest contributor to operation shader. we know that those kind of %$p activities, we need to be in it for the long haul, that we have learned from previous campaigns. it is frustrating at times, but we have to move incrementally. we have to build a force to ensure that there isn't just a vacuum there when we go. >> i want to get to the force

and manpower part of the equation, which you talked about. you met with secretary brad carson and talked about our force of the future initiative as well. but there is a very big debate going on in washington right now about the isis campaign and whether large numbers of c american ground troops should be returning to iraq and as well going into syria. that is also going to debate over in the u.k. what's the state of the debate in the u.k., and is that on the table to deploy large numbers of british forces potentially to either one of those two countries? >> no, and we've been very clear. we do not think that is the right thing to do. coalition in addressing this. and the only way we are going to solve this problem for the long term is to build the capacity of the local force. as i said, that's sometimes very

frustrating. we want to charge -- >> you want them to want it as much as you do, in a sense. >> well, what will happen otherwise is that we will defeat this particular opponent and something else will emerge. it will take time. it will take probably many years. but that is what we need to do. i think we need to learn from previous campaigns that we've been involved in and apply that to the situation now. >> from a manpower perspective, there was a cry of relief, i think, within the ministry of defense when the five-year budget plan came out. it was more generous than many people had expected. but it is very hardware intensive, heavy plan. t=mzaecond carrier is in it. joint strike fighter features prominently in that. even though the final number hasn't been decided, it's a significant piece of it. as the u.k. continues to be at the highest end of capability along with the united states,

but the trade-off in that has been to shrink the force, less manpower investment. you've been aided a little bit by keeping manpower costs flat and also the economy cooperated there for a while. but now the british economy is starting to take off, so there's a recruitment challenge. more fundamentally, there's a concern here in washington that the british armed forces are all sort of undermanned in almost every billet, that it's traded away people to get that high-end capability and your service has suffered from that particularly. there's a sense of the modern day press gang on the waterfront to fill out ships they're getting ready to deploy because your deployment cycles are so intense at this point. and the navy may be between 1500 and 5,000 sailors short as it tries to bring in and operate both of the carriers. talk to us a little bit about what the strategy is on manpower, and are the british armed forces going to fundally have to grow? mine. what does that tell the united

states as the united states looks to trade away manpower? >> well, in addition to that big, long, expensive list, a kit that's in our manifesto commitments, we've made commitments on manning as well, on the size of the army, on the full trained strength deployable part of our army. as i've said in my speech, this is a huge focus for the sdsr. the main challenges lie in this space. it's not just numbers. in a way, the numbers are not the problem. the navy, for example, is doing -- it's way ahead of its recruitment targets. use of reserve forces, that is now, after a shaky start, is doing really well. the problem is around certain skill sets and trades we need. >> like marine engineers. >> absolutely. and those working in the nuclear

field as well. and that's not just a defense problem.9wjé it's a national problem. so there's a cross-government approach to that to really encourage people to go into those trades, to incentivize them to spend some of their career in the armed forces. not necessarily all of it. with the new employment model, which is removing some of the reasons why people don't find service life attractive, we are also introducing more flexibility in someone's career pathway. so they don't necessarily have to be in the armed forces all the time. they can move in and out of the private sector. so we're tackling this in a number of ways. but this is, you know, for me, this is one of the key tasks the secretary of state has given me

and for each of those pinch points, we have a very clear plan, which is being addressed by more than just my department. >> do you -- what do you see, b) you know, there are those americans who look at the british system and actually have seen significantly greater flexibility perhaps than we've seen from our own system, especially in how you can employ manpower, which you do with direct commissions, for example, for very talented people you need to plug a hole in. what are some of the things you think the united states can benefit from as it drafts its forces of the future by looking at britain? and what are some of the elements that perhaps we're work and doing that you think could be important to sort of revamp your military manpower management model? >> well, i sat down yesterday with each of the services here, and actually, we're very, very close in terms of the ideas and the initiatives that we are rolling out. the breaks on that for each of us are different. we are at the start of our parliamentary session.üfñ

we have five years in order to, you know, run at this. and we want to make very quick progress. but it is really about -- i mean, just some of the common themes are retaining women in our armed forces and showing they can have fall career. allowing more flexible and part-time working. so it's not just reserves and regulars, but you have a part-time work force as well. and it's providing incentives and looking at someone's aspirations and their whole family. so one of the things we're particularly focused on is spousal employment. doesn't matter how good the offer is to the serviceman or woman, if their other half can't get employment where they're going --

>> it's not the 1950s anymore. >> no, we have to move on. so there are some great common themes that i'm really keen we stay in regular touch, that we share information and ideas. there are tremendous opportunities that lie ahead if we get this right. >> you talked about expanding 7ñ opportunities for women. you are the first female armed forces minister. in the united states, some of these barriers are breaking down. you mentioned it in your speech. the first two female rangers have graduated in their class. the pipeline will remain open. the chief of naval operations as well as special warfare chiefs said we're going through an objective process right now. we don't see any reason why women wouldn't be able to do s.e.a.l. training.

what about in the u.k.? a lot of these fields -- your dad was a paratrooper. what is the game plan that you're bringing this to open some of these communities to women? >> well, there are very few roles that are actually closed off to women still. we have women submariners. we've made good progress in that respect in recent years. but we are looking, as you are, at infantry and armor. one of the things that we're particularly looking at, we have looked at can women make the grade, can women get through training, why we should be doing this. one of the issues that has come out of that initial research that we are now following up on is not just can women get into these trades. it's can a woman enjoy at least the average career in these particular areas without being broken. and we're doing research into that and looking what we would need to do in order for them to do that. >> and to retain enough to be able to make command at some point, right.

>> exactly. because otherwise it's not going to be an attractive career, i think, to the sorts of people that would wish to do this. i think there are great opportunities in that for the fellas as well as the women. we ask a huge amount from these people. they put themselves through the mill and sustain injuries. i think we can, both of us, the u.k. and u.s., can do a lot more in ensuring that people are -- they have better fitness advice, that we're trying to mitigate those injuries as much as possible. so i think a by-product of this whole process is that we will have better advice for people, whether they're preparing to go and try and qualify for these trades or whether it's looking after them as they go through % it.

i think we see great merits in opening up these trades to women, but whatever we do, it has to be evidence based. so we're going through that work at the moment. >> one last thing before i open it up to the public -- to the audience for questions. do you -- you mentioned, for example, that there's a debate in the united states about the gap between those who serve and don't, between the 1% and the 9g 99%, and that there is a civil military gap that's emerged. part of it, i think, especially for wounded veterans, for example, is an overwhelming i didn't have to go do this, they did. but this is also sort of a long-term challenge for care for veterans. how do you put this in the broader context? the united kingdom, given its rich military heritage and the military being in many, many

facets of life and permeating into it, you would think that bond would in some cases be stronger. but what are some of the fundamental things that have to happen to reduce that gap between those who serve and don't? percentage wise, it's almost identical for you as it is in the united states. how do you do this? is it more ways to serve to attract people? what are some of the things you think are the right model to solve that issue? >> well, i think, as i mentioned in my speech, the starting point is to really create that understanding about what -- in the very rapidly changing world we operate in, what are our armed forces there to do and to get communities to feel ownership of their armed forces. there are a number of initiatives that we're doing to address that, but fundamentally, political leaders have to articulate what they're for, what we're doing. i think that as we leave afghanistan and as we change to

less high-profile operations, hopefully with less casualties, that we need to keep the public focus on our armed forces and explain what they're doing. when we had the high rate of casualties that were coming back from afghanistan, there was a tremendous outpouring of support from the public, huge amounts of money donated to care for veterans and organizations like help for heroes. one of the concerns that certainly we had on the defense committee at the time was how sustainable were some of these things if -- when the spotlight is then off that activity. >> 10, 15 years from now. >> yeah, and what's the legacy of that. so i think we did a good job of really addressing situations and when facilities were being built, really questioning what's the long-term plan for that to be sustained.

so i think we were on to that very quickly. but the armed forces covenant, i think, is probably the most powerful vehicle that we have. it's very new. but it is having an effect. it is changing behavior. so i remember actually it was the first engagement i had. when i was starting to run for office, i went to see one of our veterans organizations. a continual theme from veterans was when they went to the local authority to ask for assistance with buying some new -- a new fridge or a cooker, that they were -- as soon as it was discovered they were a veteran, they were sent to the british legion. it's no longer acceptable for local authorities to do that. if you have served, you cannot be disadvantaged in any way. so it's changing behavior in local authorities and

institutions, in business, as k there's a few carrots in there as well. i think through that, and that's being developed and progressed and we're learning very much from what you're doing over here, i think we will create that link. we will create that narrative and develop it so it's about our armed forces today. i think just finally, there's some great initiatives from veterans themselves. there's a new initiative called i am a veteran, which is really dispelling some of the myths around our veteran community that they're all fragile or all suffering from mental illness or all on the streets homeless. there are clearly individuals who have problems, and we need to be there to take care of that, but that's not representative of veterans. >> no more or less than the broader community at large. questions from the audience?

when who continues to heal at an alarming pace. >> i'm a senior adviser here. also a former royal naval person. served in a sister ship to the one i'm told you're named for. minister, my question has to do with some of the betts on which your future defense is really based. obviously, you've got f-35 carrier replacement and trident replacement, but on the side of the army you have a big bet about the reserves, whether they can fill these holes. then you have two brilliantly innovative ideas. i wonder if you could comment about how the reserve is progressing and filling these holes and how you see the progress and what you hope to get out of first isr brigade and 77 brigade. >> things are -- i mean, in comparison to the numbers we have fielded before in reserves, this is fairly conservative stuff. it's always the small things

that mess things up. we had -- when we initially started to recruit and have the uplift into our forces, there were glitches. the admin didn't work, all of that. that's all been ironed out now. we are getting people, not just through the door, but through training quicker. and, you know, the navy are doing very well and ahead of the curve. the army clearly has much bigger challenges, but it is doing well, and it is ahead of its targets at the moment. but we need to constantly be, you know, looking at doing things differently, and we are -- we've brought in some very innovative initiatives to speed the whole process up. so rather than someone having to apply for their board and then apply for their medical and this

all take a long time, they just go away for the weekend or a week and they get all the admin done. just very simple things that smooth the path through. one of the experiences that i've had is that i've actually been through all of my officer training as a member of parliament. at the time when this uplift was happening. so i've actually been through and witnessed the change in the quality of what's being done. it is very dramatic. also, the cultural change that's happening. so i was on this second only court at dartmouth that was nñ fully integrated between regular reserve and auxiliary as well. you get people transitioning between the three. so huge amount being done.

i should say also by a small group of people who have worked extremely hard to get all that to happen. we are facing, you know, massive challenges in other areas of defense as well. and we are going to have to do more with what we've got. the reserves are absolutely fundamental and key to enabling that to happen. and that's not just, you know, a way of keeping the numbers up. it's also how each individual service is going to use them. and in terms of developing that as well -- as i mentioned before, part-time working as well, i think that will help us dramatically fill some of these skills gaps. and i think it is a very exciting time to be going into those services right now. [ inaudible question ].

>> in terms of your concerns about -- >> whether that's going to be able to fulfill the task -- [ inaudible ]. >> in terms of use of reserves? >> no, no, no. [ inaudible ]. >> a great deal of my role is spent looking at grids with red blobs on them to say where our pinch points are. in fact, all of that management information wasn't there five years ago. so we know -- you know, i can tell you where headaches are not just today but actually years from now. so we have challenges, but we know where the problems are and we have a strategy to address them. so i'm very confident about our ability to do these things.

>> young lady right here. >> thank you. esther bremmer. george washington university and previously at the state department. i'd like to go back to the strategy and the thinking underpinning the current review and particularly ask you about one of the great principles obviously associated with the united kingdom and united states, freedom of navigation and freedom of the seas. we see a return to competition whether we're talking about the arctic or the south china sea. how are you thinking particularly about maintaining this principle and what it means for deployment and how will that underpin your approach to the review? thank you, madam minister. >> when i got into office, i had to -- i was wearing a purple dress, i think, when i addressed the m.o.d. for the first time, but it is no secret that this is a subject close to my heart as i'm an rnr officer. i think that one of the challenges that we have, i think, not so much with those that are very close to the review, but with the wider stakeholders and in particular parliamentarians is to keep them focused on these more

traditional bread-and-butter issues of defense. we are a maritime nation. if those pinch points are closed in a few days, we will be in 90% of everything that we -- you know, uses fuel, as goods, is brought to the u.k. by sea. so this is an absolute priority for us. part of this -- and to really strengthen the ability of the royal navy, which is absolutely fundamental, is not only that we, you know, have the right platforms and that they are -- it's not just numbers but the kind of technology that we're really investing in, which keeps

us relevant to you, it is also that we have -- we're able to drive down the costs of producing those platforms. one of the key questions as we go into the sdsr is about that sovereign capability. we have announced our ship build strategy, for example, and we wanted to ensure we have realistic drum beats for our shipyards. i've spent a lot of my parliamentary career educating my colleagues about the mission of the navy and what we need to enable it to have the reach that we need. there has been a move towards much more closer working with other maritime organizations. it is a big sea, and we need, you know, other eyes are on ensuring that it is policed and it is -- those trade routes are open. then we want to encourage that.

i think we have seen a shift in where those concerns are. certainly for us in the last five years, there is less concern about piracy than there has been previously because of the strategies that we've been working on in certain parts of the world. but, you know, it is a challenge for our navy in terms of what it has to do with what it's got at the moment. the big step change for us is when our carriers are back in. they're going to be based in my constituency. the first ship will come in, in about a year's time. but that will be a massive boost. >> there's one follow-up i want to make on that. you know, i'm a big fan of leanders. the surface force was large enough to have a global presence capability. instead, the u.k. has steadily traded away numbers to move to the highest end and now it looks

like the frigate force could be as small as ten. i know that's under review, so i should look at your eyes for any signs. the lucky 13, which sir george is very happy about. then there's counting opvs against the numbers and things like that. at some point, is there a recognition that, a, you need a more sort of tiered force a little more like how the french have, which have open-ocean ships which are good for piracy but aren't at the highest end of capable, or simply have to invest more as a maritime nation as opposed to shrinking sort of six large, you know, destroyers of the daring class and 13 of these ships and a couple opvs. right now you realize even with

the type 23 force that are very capable and extremely high availability, those ships are running incessantly at this point. >> i think that there are clearly two schools of thought. do you try and go for reach and have more opvs, having more of a presence, or do you invest in what are probably the most expensive warships in the world. we have done the latter because the capability the type 46 will bring. these are the most sophisticated warships in the world. you can buy a frigate for half the price that our type 26s are going to cost us. but it is that capability that makes our navy great. and we have made a conscious decision to invest in that. where we can build more hulls and we can obviously man them, we do save. so actually in the last sdsr, we have managed since then to squeeze three more warships out of the defense budget, so we're building three ocean patrol vessels, which again are more capable ships.

they will replace some hulls eventually, but they are just more capable platforms. so for us, the capability is absolutely key. and it is -- if there is a choice, we will go for that. >> yes, ma'am? >> i'm the associate director of wiau in kiev, ukraine. thank you very much for being here today. you've spoke to the public opinion in the u.k. regarding the military and its involvement around the world, particularly you cited afghanistan and iraq.

here in the u.s., of course public opinion is we hear so much of the u.s. leading in efforts around the world. we know our u.k. is a strong partner. where could you particularly define the u.k. as leading with the u.s. partnering in efforts that the u.k. has either taken initiative for or has intent to take initiative for? thank you very much. >> well, i think -- i mean, we clearly have common objectives. i think you would be hard pushed to find something that we, you know -- we didn't both have a stake in or were increasing our activity in. i think one of the things that the u.k. has really pushed and led on, particularly under william hague's stewardship as foreign secretary, is on women, peace, and security and on building capacity and providing training to other armed forces. we very much see that as a