you get people deleveraging. you get people deleveraging at the time you need the robust growth so you don't get long-term unemployed people who never get back in. and then third, the remedies are almost inherently unpopular. you have to stabilize the 75% of the system, which is large financial institutions. you stabilize them to help little -- the average person, to help their savings. but that person still sees you stabilizing the people who look like they're the culprits. and so you get yourself in a situation where you have to do what you have to do to save the economy. but it is not out of anybody's agenda for what is popular, and then it -- >> save the economy, but destroy the democratic party? >> no, i think it was, when you inherit a financial crisis like that, it does help you get reelected, but it does make it hard to completely meet the expectations of people when you're overcoming the type of -- i mean, look, it wasn't an average recession. it is the worst recession and crisis since the great depressi

there are three -- we have been in a post crisis deleveraging world where everything it has been sloweverybody has been negative. but the private sector deleveraging, which caused this slowness along with too much causesion, those asked of this slowness are now ending. you do need to be a little bit more optimistic on growth. much of that will not come from the u.s., more so than we would of thought. there are three big positives. lower taxes, push back in regulation. those three positives for the world are bigger than the trade lull negative. you have to be more optimistic. julie: when you look outside the u.s., the conventional wisdom has been a trump presidency will not likely be good for emerging markets. outside of china you think are our opportunities. michael: emerging markets is a little too broad brush for us. to 2010 that from 2001 china created a glue that bound many very separate countries together in what we call the emerging markets. they shared a common face. that glue has been gone for some time. we think you can find tremendous opportunities in the debt market in braz

is necessary, when you have a debt of those levels at a lot of it untraceable, some deleveraging isry but what fashion will you do it because if you do it to quickly and aggressively, the system cannot stand that. francine: is that a concern? jonathan: yes, what we had is earliereffect of easing in the year, it takes longer to work through in china, that gave us three good quarters by the government numbers which will start to fade towards the end of the first quarter of next year and the big question will be -- whether the tightening continues and deleveraging continues, supply-side measures continue or whether they think about another easing cycle? asncine: could it go as far mismanagement of debt or leading to some kind of financial crisis? geoffrey: that is where the question is coming interbank is behaving well for now. you could get some transmission into the back, the problem with the chinese financial system is a lack of transparency. that is where the unintended consequences come through. it is not a good mix. , will we get a strong fiscal stimulus? francine: that is what y

they deleveraged. later on, they did with the budget, and now they start thinking of increasing interest rates. whereas in europe, the sequencing was very different. they did not deal right away with the banking problem. him him him him him him what they did was they very quickly said no, we have to deal with the budget. so they imposed in 2011, very soft budgetary rules. france, for example had already increased tax dollars. you already had the knife and your throw, he had to do it. later, with the bad loan problem with the banks and all that. it was the exact opposite of sequencing. the u.s. has a more flexible economy and more flexible label -- labor market than we have in european countries. and even have a more proactive macroeconomic policy. europe came later. they came to it later. the u.s. has a much more -- you said the macroeconomy has to accommodate. we don't have flexible markets in europe and we don't have the fiscal and monetary policies you have in the u.s. we know, in fact i am doing wo

preparation work this year, they have a chance, but the reality is that it is a policy driven deleveraging and it will be bumpy and uneven. rishaad: they keep on saying that, don't they? >> everything policy driven, not market-based. it depends on when people get their attention on the things to be done. whole, i think we will make more progress next year. rishaad: thank you so much for joining us. julia weighing from hsbc. u.s. benchmarks jumping the most in a month, setting fresh records and speculation the ecb will extend its asset buying program, the s&p and dow climbing to all-time highs. oil dropped back below $50 in new york. that sparked a retreat into industrial metals, gold and the yen on the up, and some investors remain cautious. the night they knocked it down i thousand points, i went and bought stock that night. i thought that was crazy. i think now the markets are ahead of themselves. so i'm not going to sit run out and buy stocks today because i think it has run a little ahead of where it may be should be. rishaad: the philippine president says donald trump wants what he ca

in the future, i would prefer to see the economy growing 6% with some form of deleveraging. >> wouldof the market reaction with what we saw with the currencies? investors overreacting, do you think? >> first of all, what the world saw was something that was confusing and not well communicated, and it gave rise that the chinese economy was in a week or place than it appears to be, always perceived by policymakers to be. economy is not as interconnected to the global financial system as the u.s. and european economy. that will surprise some people to hear. >> what is connected are the flows of imports and exports. if you are an exporter and a developing emerging-market and you think growth is dropping even faster than it is, that has a huge impact on what you think the future looks like. >> fact is china exports more than it imports. from manufacturing, there is also the service industry, as well as many other channels of income. but people can only see the debt in a state owned enterprise. when they need to recognize that china is a big exporter and the in flow from foreign exchanges

yvonne: no calamity, but this is a time when policymakers are attempting to deleverage.this spiral into something the market is not expecting given that it's not just the vicious cycle, but also in the bond market? >> yes, there is that issue there. has moved to tightening, and that is putting pressure on bond yields in china. that is partly global. occurred after the fed announcement, so china is being drawn into this backup in bond yields we have seen globally. or have's one of the only countries that has not in drawn in is japan. the boj since september has had this commitment to keep japanese ten-year bond yields around zero, so that has given japan a huge in vantage and all this, the japanese share market benefiting from the fall in the databetter economic recently, and on top of all that, you have on yields capped around zero. ramy: you talk in your note about rotation to fiscal policy from monetary policy. what is your strategy to work with this? of, calls that is sort it a great rotation. for the last five-six years come all the emphasis has been on monetary poli

they deleveraged. later on, they did with the budget, and now they start thinking of increasing interest rates. whereas in europe, the sequencing was very different. they did not deal right away with the banking problem. what they did was they very quickly said no, we have to deal with the budget. 2011, veryosed in soft budgetary rules. -- france, for example had already increased tax dollars. you already had the knife and your throw, he had to do it. later, with the bad loan problem with the banks and all that. it was the exact opposite of sequencing. the u.s. has a more flexible economy and more flexible label -- labor market than we have in european countries. and even have a more proactive macroeconomic policy. europe came later. they came to it later. -- you. has a much more said the macroeconomy has to accommodate. we don't have flexible markets in europe and we don't have the fiscal and monetary policies you have in the u.s. we know, in fact i am doing work now showing that there is complementar

in the future, i would prefer to see the economy growing 6% with at the same time some form of deleveragingou make of the market reaction with what we saw with the currency over the last few months? investors overreacting, do you think? >> first of all, what the world saw was something that was confusing and not well communicated, and it gave rise to fears that china's economy was in a weaker place than it appears to be, or as perceived by policymakers to be. china's economy is not as interconnected to the global financial system as the u.s. and european economies. >> that will surprise some people to hear. >> what is interconnected are the flows of imports and exports. if you are an exporter of an developing emerging-market and you think growth is dropping even faster than it is, that has a huge impact on what you think the future looks like. >> the fact is china exports more than it imports. aside from manufacturing, there is also the service industry, as well as many other channels of income. but people can only see the debt in a state-owned enterprise when they need to recognize that ch

they were trying to deleverage a lot of it but most investors were wrong going into this.uessing and betting and investing in the fact that the remain camp would win. they have had to completely unravel those. we are talking about margin calls and stop orders setting off and everything was limit down this morning. >> one man is steering the ship of the markets, it is mark carney. 2008 to 2013 he ran the central bank of canada. many say he was responsible for canada avoiding many disruptions others had. the phrase he used the bank of glanwill not hitate to take action, a quarter of a trillion pounds is available. francine: this is pounds. you can see how it was crushing the financial crisis. i know banks are not systemic and there is a safety blanket from central banks, but you can see the movement and panic of traders analyzing the results at 3:30 a.m. this is chaos. does it feel as bad as 2008? >> it is difficult to understand why a lot of smart money was betting on remain when the result is substantially in favor of brexit. i'm not surprised by the hectic market this mor

we're planning on deleverageing our balance sheet rapidly.we are committed to the dividend which have for our investors. so we're very confident and feel good not only about our balance sheet but our financials going forward. >> are you the first tech ceo that i can really ask directly about what's happening in washington. with president-elect trump is not just a man who speaks. he acts and he is clearly concerned about china. we are very concerned for the tech companies we filed that maybe there will be retaliation. you have a lot of business in asia. how do we either get our arms around this or do we accept this as a new risk factor to owning western digital? >> well, it's absolutely a risk factor for all of us in terms of the tech industry. we got a substantial business if china. we have a lot of partners that we do business with. we have a good relationship with the regulatory authorities, which has taken us some time to be able to do that. i'm hopeful that the trump administration will be, you know, business oriented and understand that

they are not deleveraging.le tool in their arsenal to kick this can down the road while they gain more and more control over the economy of politics in the region. time, those same costs are rising extremely. take a look at the bloomberg here. this is the yield here in china. at what point does that become prohibitive in terms of credit growth? >> if you take it back a bit further, it's not that bad. what we see is a repricing of yields across the board and nation countries due to the u.s. impact. there has to be some kind of follow through there. china still has other options on the table. they are looking at debt to equity financing and they approved and issuance. they are leaders in financial is asian of the economy. they are years ahead of everyone at an equivalent stage. which aspects of the economy can they pull the lever. for me right now, keeping this machine going is far greater than the current instability/inflation. these reforms in terms of anticorruption measures are going to get a lot more power.

you get people deleveraging. you get people deleveraging at the time you need the robust growth so you don't get long-term unemployed people who never get back in. and then third, the remedies are almost inherently unpopular. you have to stabilize the 75% of the system, which is large financial institutions. you stabilize them to help little -- the average person, to help their savings. but that person still sees you stabilizing the people who look like they're the culprits. and so you get yourself in a situation where you have to do what you have to do to save the economy. but it is not out of anybody's agenda for what is popular, and then it -- >> save the economy, but destroy the democratic party? >> no, i think it was, when you inherit a financial crisis like that, it does help you get reelected, but it does make it hard to completely meet the expectations of people when you're overcoming the type of -- i mean, look, it wasn't an average recession. it is the worst recession and crisis since the great depressi

so i think it is going to be very important for him to try to deleverage, sell off the building, pay down debt, or figure out some other way where he is not going to be carrying large loans from the banks while his administration is supposed to be regulating the banks. in: and his hotel washington, d.c., and violates the lease that he is both the landlord and the tenant and says that cannot be. you cannot give public official and have the lease to this hotel, which is a government building. anothernk he has got place to live in washington, d.c., for the next four years, so it is a good idea for him to give that hotel to his children. better yet, find a buyer for the hotel. the president of u.s. is not an innkeeper. he does not need a whole lot of that -- to hold onto that hotel. he is plenty of other things to do. it is not necessary. it will create a lot of problems because of the foreign diplomats, the lease with the gsa come and all sorts of other problems. i think you should sell the hotel or give it to his children or somebody. you should not be holding on to that property. amy:

economic environment but that expansion has taken place within the context of the lever to get deleveraging is a fancy word for paying down your debt. so the challenge of the debt overhang does remain in place in the new administration will have that challenge to overcome to the extent that revenues do not exceed expenses at the federal level. more borrowing is required and more borrowing will and impact on interest rates. i wasn't not cover each of these other than the point out down the page the fed funds rate was unchanged during the third quarter but that fed funds rate today-not the fed funds, the treasury yields today is 2.49% and heard as the we look at not just the constant maturity rates that we have here but the spot rate for on the run treasuries. that number is also in that 2.5% range. so we've had an 80 basis point increase in interest rates since the close of the quarter. that is big news. i would be happy to take questions on the economy but as i say, it's been a slow recovery in the us. we are at the aging part of that cycle. we have a new administration with new plans and s

the confidence that consumers have, the fact that they are deleverage means that we have a lot more potential in our economy going forward that does require continuing to have sensible and sound policies that have undergirded that economic strength. >> let me ask about inflation. the fed raised interest rates yesterday and are proposing array several times next year. -- posing a raise several times next year. >> we have our final forecast in the final economic report so you can look at what we forecast inflation to be. it was pretty similar to the blue-chip, which is gradually rising to what the fed said its target is, 2% for inflation measured by the pce. all the signs we have seen are exactly what you would want to see, which is a process that has been very gradual. the goalstent with the policymakers have set out, unlike some other parts of the world that are still worried about deflation. that is a conversation we had not had in the united states for good reason. >> if the new administration were to come in with bigger deficits, more deficit spending is that more of a concern? processnk w

part of why things are better recessionsuse w slowly and deleveraging. tom mentioned italy.world,ot that the whole but the u.s. clearly is in a better place. i hope we do not boughtch it. tom: you wrote about 14 flavors of floating. it is a new currency world right now. is there such a thing as constructive depreciation? do you look at currency depreciation as a good tool, a good policy tool for various nations? kenneth: for a lot of countries, the currency depreciation is a reflection of other policy. tom: a follow-up. kenneth: the u.s. looks like interest rates are going up maybe much more than it seems like a year ago. that is rising the dollar up. that provides a cushion for europe, japan. there are some countries like china, which do not allow a lot of movement like that. francine: thank you so much. aboutl talk to ken rogoff italy, india, china, and other emerging markets. stay with "bloomberg surveillance." you speak with the former prime minister of italy tomorrow at 10 a.m. in london. this is bloomberg. ♪ francine: this is "bloomberg surveillance." tom king is in ne

china might be focused on deleveraging now.ine: this move to degrade the dollar, why is it being done now in the trade weighted currency basket? : we know there has been concern about depreciation against the dollar. what pboc wants to be able to say is, do not just look at the dollar-yuan rate. the index has been stable. where the dollar is strong, if you degrade the dollar within that basket and the greece the weightings of that currency, that could help china maintain a steady yuan, in terms of the basket. francine: thank you so much. lee in ali-- justina hong kong. , do we need to look -- we will get onto a little bit of foreign policy and trade in a second, but what is the biggest risk? is it a trade war that turns ugly? or just the fact that they have a trilemma of reserves lindley, outflows, and the currency dropping, and it is difficult to stabilize those three at once. lucy: it is very difficult. i think that is a dilemma, a we have been looking out for years. we have been able to understand what the constraints are an

we are seeing consumers at the bottom of their deleveraging sibling getting ready to pick up more cyclet's going to be something to watch going forward. i said that recovery still has legs. the cyclical recovery still has legs but watch out for build-up the debt especially on the consumer because side. >> it's worth noting that banks like to put loans on their books. so when consumers and companies get ready to put more data on before that debt goes bad, that's a good thing for them. david: at what point do you have to be concerned about growth versus inflation? >> when we it reaches levels that would start to promote additional inflation or accelerate inflation by itself. we're probably not there yet. easily a good four or five or six quarter waste from that. avid: thanks, gentlemen. for an update on to news outside the business world, we go to emma chandra with bloomberg's first word news. emma? emma: mortgage fund traders have found a new home. the shadow banking system. bloomberg reviewed employment records and found 20 traders left their banks for a forced out because of a probe. a

alix: so, if we wind up seeing strong the lab -- some kind of deleveraging, what is your strongest convictionreat market, i think prices already reflect the good news everyone is aware of. when i look at what is the procedure seen think right now, i would say that these, kind of, deeply subordinated bark -- bank markets that live on the cusp of investment-grade high-yield is quite attractive and compares very favorably right now too high yield for the high-young market. you can buy what i would say are very good banks right now in terms of u.s. preferreds that close to 6%, which when compared to the overall high-yield market yielding around 6%, i think that is an attractive investment. alix: what has been attractive is an operation twist, sell the short end, by the long end. nabila: absolutely. you will see that flatten out more and people going out to the long end for these reasons as well. jeff, do you see that -- an operation twist action in investment grade market? jeffrey: we certainly see a fair amount of demand in the long end of our markets. i think a lot of that has to do also with -

even when your sales decline by 1%, the deleveraging of that is enormous for a bricks and mortar retailer you're seeing walmart with jet. these are big for these small online retailers. so i think you're going to continue to see a decrease in store traffic. bricks and mortar store traffic was down 10%. that's an enormous change here for bricks and mortar retail. so i think you're going to see a decline in these malls, the secondary smalls, third tier malls are all going to decline. you don't want to be a mall investor at this point in time, but it's all going online. that's where the growth is. especially amazon. >> what'd you say, 15 -- how many years? >> i think it's a 15-year high. and i think this is a -- an 11-year high in retail sales. >> andrew said does it have anything to do with trump and you said i don't know. how about 5% due to trump? i mean, really an i don't know? you don't see any correlation between the election and consumer confidence? >> nobody knows for sure, but i think people are feeling -- >> do you see where he is? he's in washington, d.c. he's got to walk out the

economic environment but that expansion has taken place within the context of the lever to get deleveraging is a fancy word for paying down your debt. so the challenge of the debt overhang does remain in place in the new administration will have that challenge to overcome to the extent that revenues do not exceed expenses at the federal level. more borrowing is required and more borrowing will and impact on interest rates. i wasn't not cover each of these other than the point out down the page the fed funds rate was unchanged during the third quarter but that fed funds rate today-not the fed funds, the treasury yields today is 2.49% and heard as the we look at not just the constant maturity rates that we have here but the spot rate for on the run treasuries. that number is also in that 2.5% range. so we've had an 80 basis point increase in interest rates since the close of the quarter. that is big news. i would be happy to take questions on the economy but as i say, it's been a slow recovery in the us. we are at the aging part of that cycle. we have a new administration with new plans and s