Transcripts For CSPAN Key Capitol Hill Hearings 20131109

Era in which yet again we are presented with an for negotiation which is further is made urgent by the development of the Iranian Nuclear program which upsets as well it should. As well it should. Idea of a weaponized iran iran having Nuclear Weapons, appeals to nobody, appeals to nobody. It really is not something that and benefit the world frankly i dont believe it would benefit iran. The problem with iran not the roblem, the challenge with iran, iran is not the country which you can bully. Way. Imply doesnt work that if you look at what iran excels olympics, its wrestling and weight lifting. Really, im serious. A country thats very, very nationalistic but has a self. G sense of i told people if you go to teheran, im sure you all will point, your host will ake you to something called a zuhrhana. Its a house of strength where people do sort of synchronized lifting. Its very, very interesting. The point im making is not a countrys is that gives in well to they of a strong sense themselves. Nationalistic. Heres a sort of a marshal quality there. It doesnt work. Whats so interesting about the yet again an opportunity for some type of eaceful resolution of our differences with iran emerges. Again, im skeptical because im skeptical. We middle east specialists are ind of the oncologists of middle east studies. Invariably, were wrong, we cant do anything, we have no good news. The stakes are so high, theyre think i ant, that i certainly supported president bamas attempt to meet the initiative in the spirit in hich we would like to believe its been given. Here are no guarantees, no guarantees. Having said that, the planet earth is less of a place with iran in a ox, with box that we need to try to find a way without giving away the syria, i ay we did in but to try to find accommodation with iran. Work. It wont maybe it wont. But the irony about this and the unusual characteristics to the the initiative u. S. And president obamas esponse has driven iran and saudi arabia to the same corner. Thats quite an achievement that israel israel and audi arabia are very, very uncomfortable with the ossibility of the ongoing negotiations with iran. Some israelis some you say the israelis. Theyre too interesting and israelis. O be the what some believe and many more saudis believe, is that the are doing this to buy time and they are not sincere. It. Dont mean they will not be able to deliver. Iran will do what i believe with a chemical weapons program. N a sense if you accept that accusation about syria, it deserves to be considered about iran. View, my personal view that the risk is certainly worth taking. We are right, the big beneficiaries are likely to saudi arabia and sword . L not be under the if im wrong . F youre a schlomo six pack sitting in tel aviv or in riyadh. He was living in los angeles, we nuked, he wont even let us stay in his guest room. I understand that. I really do. I believe in our form of government, i have some trust in the elected officials, maybe than Angela Merkel does than others. This is a serious issue the government has been involved in since day one. The first set of negotiations in well. Went very Wendy Sherman who was leading our negotiating team didnt details. Any he iranians showed up with a detailed power point presentation. This wasnt ahmadinejad clowning around. Showed up with some serious suggestions and everybody walked way from the meeting feeling that this was time well spent. In both countries, this, again, is going to be interesting. Theyre going be naysayers in countries. There are people in congress say, aha, see, the sanctions are working. It squeezed iran into compliance. Up the sanctions, got them on the ropes, theyre on the run. Sanctions more. Wendy sherman, again, the person from the state department the negotiations said she does not believe it would be helpful to increase the sanctions now. She said the duplicity is part dna the iranians didnt like that. Something from everybody. The Nuclear Issue is important. I dont think its the only issue. Its going to get sticky is on levels of enrichment, that has the right t enrich plutonium for uses. Very,vel of enrichment is very significant. And we the isrealies and the others are afraid of is that iran will be so close enrich quickly and weaponize. I would not dismiss that. Serious to say its not a possibility. Its got to be factored into the thinking. Obama administration and the department will say they have this they understand it and under control. Each country has its own tea party. There are tea the iranians tea. Nted drinking there are naysayers in iran who very, very his difficult. Who as there are naysayers argue were being tricked. This is not going to work. Obama and lenge for uhani, they need to sell one another, they have to sell their own people. Theyve had such challenges in east, that one of i ts one of the issues it has to contend with is the credibility on the middle east issues. Hese issues were all related, were all related. Were having a little discussion out of urposely stayed on does the palestine issue matter . At the end of the day, the symbolism of the palestine issue a lot. Its resolved tomorrow, were retire ng to be able to to a warm climate and not worry about anything ever again. But having said that, if the issue is resolved, satisfactorily in the way to Israeli National security and gives the palestinians their own right, it to dislike and distrust one reason to this in thedistrust middle east will go away. Theres a list of others have oing do with egypt and so on and so forth. The palestine issue does matter. Fwheed to understand how does it matter. Nature of the mattering . There i think we need to be realistic. All of the issues are related. Obama has all sorts of domestic issues. Of a care, the endless list things. So the question is if we are ble to make a deal with the iranians that satisfied him and secretary of state kerry, will this deal to sell the American People and their representatives in congress. Consideration. The same is from iran. Its a twostage challenge. Ne is to get a deal with the other. The other is to get the camps to accept the deals. Supreme leader commented. It went well. There were some imperfections. What the Supreme Leader was criticizing was the phone call ruhani and obama. If they cant have a phone call, it shows the level, you how difficult it is to make a deal. Let me end by advocating humility when it comes to understanding iran. The da is just not there. Were stumbling around in the ofk and trying to make sense things with fragmented information. A lot. Ngs change so these are all my personal views. Study iran, the longer i think i should have been a switzerland specialist or something. Do it, the more i am always discovering new complications things that i hasnt figured. The record of middle east pecialists, im looking at the professor, the real deal of serious political scientists, one of uniform failure. Ou name it, we failed to predict it. It is. Wreck. An extraordinary i say dont come to las vegas with people like me. But were in las vegas. Thats normally what i say. We didnt predict the arab name it, we didnt get it right. Be aware of experts from out of this is ven in town, not for the faint of heart. Let me stop with that. Have d be delighted to questions or contrasting views . Yes, sir . Did everybody hear the question . Let me just so for the urposes of a cspan taping, we need every question to be made rom the microphone in the center of the room, please . The question is, if we make this deal you spoke of with the republic, are we not selling a six pack down the river. I think it depends on what the deal looks like. We as americans and great iranians in the u. S. , some to realize, that the Islamic Republic is here to stay. It was a country bourn of a evolution, something we should understand. Legitimate, its done things of our not in accord values or many iranians values, this is it. Bringing iran back in to the reintegrating it, opening the country up so that people can visit the country and get visas and come here and go to the university of Southern California and study or unlv or whatever will benefit the six pack significantly, significantly. Before we go to the next question, let me ask you to devote a couple of minutes . Can you hear . One right here. Yeah, okay. Irans one aspect of role in the middle east that you given ant to touch upon our limited time, we do so much. His is critical in understanding what is going on in the arab world. The is irans role as the global rdian of shiah community. And this is whats getting the way they do. Ct the the saudis are reacting the way they do less because theyre iran was going to nuke them than baulz of the rise iran as the major voice in the traditional world thats to arabs and islam. This is a direct challenge with the world and how they look at themselves. Comments are your on that . A very, very important and question, paul. Thank you for raising it. Iranian revolution if you think about it has failed. Seriesmeant to sponsor a of islamic revolutions around the world. Supposed to be the model for muslims to throw off the oppression. Aroundhan various groups the world, no country has gone the way of iran, iran is the advertisement of creating ala iran. Epublics the Shiah Institute is imperative. Thats not going to go away. Its very, very important. Can pick our poison. We can line up with saudi arabia where they ear toying with cars. G women drive thats a remarkable achievement century. St or we can make a deal with iran. At the end of the day, i go to lot. I arabia a i get it. The saudis are not they dont have a lot of alternatives. Theyre not going to start sending their kids to beijing to the university. I think in a perfect world, we have relationships with all in the middle east. With iran, with the sunni arabs. And with sraelis, turkey, which i think of as a state. Eastern what youre talking about is not going to go away. Its very, very important. He question is how will that play in terms of broader opportunities for Economic Development and integration into the into the world and so forth . I mean, these are countries that are involving. Talked about it at all, we dont have time, is the arab spring. Events in gypt, syria. His is a region which is of rgoing changes and areas instability. They all feed on one another. Excellent. Make questions as brief as possible. Make answers as brief as possible. For that, i apologize. You pointed out how all these unexpected things happen. Dont you think we were helped history in tarting 1979 rather than in 1953 and alan and his brother got together and overthrew the government. You didnt mention anything about that. Another thing that you talk about the danger of iran having weapons. What about the danger of israel weapons. Uclear or the United States having Nuclear Weapons. Were the only ones that have killed people with Nuclear Weapons. And what i wonder if you look into the future and see what is going to happen when becomes the dominant country in the world. It takes over from the United States. Do you think that ill affect iran and israel which seems totally oblivious to going to hat this is happen . Guy. M a simple and i dont disagree with the cularly 1953, part of iranian narrative. Youre exactly right. Thats part of the story. The reasons they dont ike us is we brought the shaw back, we kept him in power. Israel has Nuclear Weapons . Going to do . Call them and, you know, not sure what we can do about it. Dont even like us having a suggestion . Get the issues and do it. We can solve the palestine question. If we can make a deal with iran, so many ifs, all of the other things you mentioned may not get dealt with. Better world will be a place if were realistic in our ambitions. Thats the f word, maam . Jerry, i have loved your presentation. Informative and charming and witty and most enjoyable to listen to. Liked better i was our conversation around the table which was a lot of fun as well. Im going to take i dont think anybody in this room would istake me to be a tea party person, quite the contrary. But i come down on the side of think that a deal with iran right now is an tellsibility and im going you why. Or maybe not even talk about that. But i was part of the original cosponsors of the iranian sanctions bill. Both of them. With thed very closely europeans in ensuring that they voted for sanctions in the eu at the united nations. O this is something ive been involved with for quite a while. The reason that ruhani is reaching out the the United States and to the europeans is the sanctions are actually working. We are bringing their economy to its knees. We start e mind if loosening up those and sanctioning them before the end their ree to Nuclear Ambitions and i do not elieve for a minute that they are attempting to use nuclear for peaceful purposes. Only one reason they are orking so hard and spending so much money to acquire enough nough material to make a nuclear bomb. It is my understanding from the latest intelligence information theyre within a month of having enough material to, in make one bomb. And i think that would be very to lift the us sanks after all of the time and the sacrifice and the efforts on United States and the europeans, let those sanctions work. And the way theyre going to is just to if not make it worse right now, which im of we should, but just leave them in place until iranians come back and come over to our way of thinking and agree to end their Nuclear Ambitions. Find it extraordinary in this is and age that ruhani considered a moderate when hes been the advisor and right hand Supreme Leader. In addition to that, when a total ahmadinejad was lunatic and said that israel should be wiped off of the map. Was acquiring Nuclear Capability to do exactly that or so he said. Course, was a holocaust denier. So now you have ruhani when same question, did the holocaust occur, he said im not and everyone great ed him as being a moderate. Shelly, shelly. The question . The question is put it to him for you. Why would you think that lifting the sanctions now would help with the iranians given their history and proclivity. I didnt say we should lift the sanctions now. Sherman that wendy says they shouldnt be increased. I dont think we should lift them now. But youll hate me no, wont hate you. We should consider lifting ways that will satisfy your view which is an important view. You know, youn represent an important segment of congressional and public this country. Your view is not a weird view. Fully agree with it. I get it. Hope you dont think i was calling you a tea partier. Steer clear of that. Obama is going to have to satisfy people who hold that view. It will be difficult for him. Very, very hard. The question is, how can he issues in sanctions a way that will, you know, have the same on iran at time being able to persuade which who hold your view is a respectable and important view of your concerns being met. Sorry. Y thing, i have heard so many statistics weaponize. Iran can including from the israelis which are wildly different, different. And thats part of what im we know. Is how little what you can say to me is then green, how can you afford to risk. He if its one possibility, if its can you do it. Having said that, the more desperate iran becomes, the more we squeeze them, the more likely they are to feel painted in a thats indo something ur collective detriment, including their own. The u just answered question i was going to put to you yes or no, very briefly can iranians be forced to give up their Nuclear Option lets call it that. Because thats what it is. That level of sanctions the world will agree to impose. Beyond where we are today. Not only that, by the way, the iranians are going to permit be willing to very, very intrusive inspections, intrusive inspections. You know, theres a very theres a will will they allow that. Will regard that as infringement on their sovereignty and other things. The bar is going to be pretty for them. Im not sure theyre going to meet it. This is not a bad discussion. Im right we may not agree, doesnt mean youre wrong. Of. Ts what im very mindful and history kind of favors, you know, you, more than it does me. Recent history that is worrisome, but it is what it is. Next question, please. Dr. Greene, i have a twofold question. Persecution. Tian how does the average citizen feel about that . The man imprisoned in evansville at the prison there, is that also on the minds and of the people of iran and how do they feel about it . I think that the situation of christian minorities across the middle east is not good. I mean the situation in egypt morsi and oneunder hopes under the new regime will be better. Iran being a religious minority is not a lot republic of islamic anything. But its not only christians but behi. Nd absolutely. They are at the top of the heap discriminated ng agains against. Christians have had issues. Jews have had issues. Groups. Persians are a minority in iran, believe it or not. All of these tribal and international and linguistic group. Country that shows Great Respect for diversity and pluralism. A very important question and not good. S in terms of the person being in unclear. Unclear, we dont know. Sir . I like elephants. Might be another elephant in the room that might be a concern. You please comment on the interaction between iran and currently ande it how it impacts on what youve been expressing. Really, really good question. The relationship between iran and iraq. Nothing good, nothing good. The situation in iraq is deteriorating. Genuinely believes it has interest in iraq. It does. To a neighboring country come back to pauls sunni question, theres shiahshiah questions. Thats what paul was asking. A she ya ns have nferiority complex visavis negev, iran wants a seat at the iraq table. Its wobbly and unsteady. Understand wanting to be a part of it. Having said that, iraq is not out of the woods, and certainly not on the same side as the iranians. There there have been instances iran have agreed. Afghanistan, believe it or not, withllaborated effectively iran. These things are fleeting and theyre not forever. So youre exactly right. Sir. Od afternoon, i just had a question, if we i ent murky enough already, would like to talk about iranian domestic economics. And how t sanctions that affects them in their economy. Severe some ng how are the domestic policies. How severe is the recovery going to be from that. Particularly the highly educated nd severely underemployed we cant imagine here, young population. You mentioned the 65 , under 35 years old. Whats the way forward for them . Is that going to involve, you reprivatizing the massive amount of industry thats been nationalized in iran. Looks worseomically than it should look because it a very sophisticated business sector. Highly educated people. A good labor force. Nd a tradition of being an economically very healthy country. Producers roleum which we often forget, i think if we continue on this track, we the sanctions. Under certain circumstances will be its american law. We have no choice, we need to do it. We will continue to contract. I agree with the congresswoman. Ruhani would that have done this if the economy was healthier. Its not. Did. The question is is there a seriousness ohher a deal to be made. Out on that. The economic recovery is absolutely impossible in iran. Absolutely. But the right circumstances need to be in place. Unemployment. Bowl. Uth the environment is a terrible issue. Been to teheran lately, like mexico city, cairo. The air is foul. Water shortage. Endless problems in iran that because ing dealt with they dont have the will or the resources or both. Weve been talking about this as if it were a middle east issue . What about their role Northern Africa and closer to home particularly central and h in south america . Again, i mentioned the bombing of the Jewish Community center in buenos aires. No doubt about it . Homeland, ing cant say anything without spoiling. All right, i take back what i to say about homeland because i dont want to be a spoiler. Youre right. Iran is involved in all sorts of things globally. Paul was saying. Ort of a center of a global shiah political religiousbased inspired political movement. Not constructive. Its not constructive. But having said that, if we emain on this course, its not going to get better, its going to get worse. The question is will the guys in pull back on this stuff if we reach some sort of an accord with them. It will be in their interest. They dont do it because theyre monetizing. These are desperation moves with country dealing with a failed revolution, a stalled global looking for admission. Its not inevitable. Does not have to be forever. Would help us by a country if e would be a little more attentive to latin america as well. To interesting the degree which the United States takes granted. Rica for theyre all over the place. Maam . I have a a question statement. First, my question is we talked about iran and they said we want to be in the middle east. What about iraq . Hey are also completely taking turkey. Turkey is the biggest ally in the west and as we call them, the right arm of the nato. Turkey, they passed a law. You cannot sell alcohol in their shops. You cannot sell in any restaurant anymore. In between 10 00 to 10 00 the p. M. And 10 00 in the a. M. , completely hol is banned. This is coming from it sounds like texas by the way. Texas too. At in thats okay, texas can do that. Secular country. Today is the day turkey, 29th of a day turkish, they really celebrate it because believe they are secular. But thats my question is, what opinion with the involvement of the iranian . And the turks. Both of them are arabs. And for the first time in the one more time, they are together and they are taking control of the middle east. Opinion . Your nd the statement was congresswoman shea beckley was absolutely right. Im half persian. Iran. Born in i left very young the country but still have my cousins, and i see all of them this summer. And all of them, even though very, very hurt from the sanction, really sanction othering them, but they are saying its the only way to end to the Islamic Republic turkey needs nk any help from iran. Turkey is a very, very big independent country. He Movement Towards islamization in part is a result of the rejection of the european union. Wanted to join eu for years and years and years which me. Er made sense to turkey is the only country in he world thats central asian, middle eastern, and european. They should leverage all three than going in an eu direction that benefits nobody. I dont think iran is a actor in turkey. The turks dont love the iranians. Them. Ont listen to they dont need any help. The idea theyre together, turkey dont see coordinating the policies with iran. Its a very different country different expectations and different different needs. What it does show is that an middle east is sort of undercurrent of your entire question. If iran is the only good news coming out of the middle east, does that say about the middle east . Nothing very good, nothing very good. Theres one issue where iranians and turks come together. Issue. On the kurdish thats where they help each cushing rising kurdish nationalism. This would be more of an issue the kurds set up an autonomous zone in northeast yria and, of course, in combination with Northern Iraq. Which brings me to the question former president of the first council. Do with uestion has to irans role in the syrian. F you can address that for a second . The syrianiranian always bizarre. If its about islam and sheism assad family, if its the antithesis of everything that it 1257bdz for. Is an aggressively minorityian, secular, buteligious political order it gave them an entree to the valid. Thats it puts to the idea that they zealots is d undermined by the relationship with syria. Its my view not responding quickly to deployment of weapons and delaying, delaying, delaying, taking it to congress, making a deal with russia, basically assad should send the United States overnment a thank you note for buying it another six months or a year or two years or whatever it is. Iran. W about and you would know better than i its kind of a i iranian lt that the role in syria. The iranian influence in lebanon syria is somewhat exaggerated. I think they were striving to be influential. Syrianslebanese and the are not willing to be dominated by the iranians. Sort of a marriage of convenience in which they collaborated. But i never got the feeling that was kind of pushing the had things eheran happened in lep nonand syria. Fact theirchange the involvement in both places is not constructive and its very, serious. No gain in the fact that and lebanon is totally dependent on iran as a supplier weaponry. Dependent on syria as the channel through which the arrive in lebanon. The whole setup is critical to the power in f lebanon, which now it rivals lebanese at of the military. Theyre really the power in the country. Its critical in that respect. Do never know who needs to more . Hezbollah needs iran more than iran needs hezbollah. True. s how about Russian Media . Media portrays iran as a friend, at least an ally. Iranians. T the do they take russia seriously . What is their sense . Know, russia is russia, everybody sort of takes seriously. But and there are long relations between iran and russia. A shahs father was part of ossack military brigade, iranian brigade. In ia is looking for a role the middle east. The iranians are cynical. It might a and that useful counterpoint to the u. S. Nd those forces that are marshaled against it. Russia is not eager for iran to Nuclear Weapons capability. Ussia is concerned about the islamicbased activity. In hnya, certain borders central asia. They will tolerate certain much. Ior, not too and the iranians dont have russia, ectations of nor should they. Also ould at to that and ask you to comment. As far as iran is concerned, in russia is a is a oil and gas exports front. The ore critical to iranians is the budding relationship with china. Very is becoming aggressive in the purchase of atural resources and establishing all sorts of channels to build on for the future. And india also derives a lot of imports from iran. It had been affected by the sanctions. Ts tired of them and finding ways to get around the sanctions. Notso in a sense, we should think that iran is isolate in a when it comes to the sanctions. Of e are a rising number emerging major powers that find it in their interest to work ith iran and get around the sanctions. So that is also part of the picture. Youre right. I agree. Questions . Yes, please. [ inaudible question ] the interest of the rest of the audience, the question has to do with whether there are intermediaries that could work with iran other than the nited states and germany might be a candidate . Geneva is e talks in iran. Lateral the eu is involved in a number of other parties. The end of the day, we dont tours, we need media the country neesdz decide to make a deal. Once they do, it will or wont happen. Foreign minister got his phd. At the university of denver where Condoleezza Rice her phd. So huh . So, you know, its simply the these countries to agree. But what paul mentioned and your europe questions is are all of these that collateral issues debilateralize, that feels bilateral, it is global. Global. Ly is there are all of these activities elsewhere, which impinge on our ability to make a and selling our own iranians theirs, us, ours. You made a great contribution understanding of how complex the picture is. And filling in some of the blanks. Know it would take a week to fill in all of the blanks. Useful. Was extremely thank you so much for coming out and thank you for having me. I appreciate it. Thank you. Iowa senator Chuck Grassley is our guest this weekend on news makers. E talks about some of the issues facing congress from budget negotiations to the Security Agency surveillance programs. Heres a preview. Will be t believe it very easy for us to make an agreement between the republicans and the democrats democrats want to increase taxes. Hey want to forego sequestration. If theres going to be an agreement, it seems to me its of to be a willingness republicans to get something up on sequestration. But only that would happen if longterm solution that we can arrive at between medicare. Urity and and including tax reform. Can that happen . Im pessimistic it can happen. But i know republicans are going o try to work in that direction. And i know congressman ryan is to with closely patty murray of the Senate Budget committee to try to get that direction. Road s a its a tough to hoe. You can watch more with senator Chuck Grassley, the top on the Senate Judiciary committee on news sunday, 10 00 a. M. And 6 p. M. Eastern here on cspan. The place is now called the new des Benz Superdome in orleans where the bcs title game etc. Wo years ago, built entirely in public expense badly urricane katrina damaged. It hosted Football Games again. National feel good story. I would say so. Public has invested in todays dollars about 1 billion of the onstruction mercedes Benz Superdome. Owns the new o Orleans Saints keeps all of the revenue generated there. Rebel against e this . One reason is many people dont place. And this is taking the second reason is they feel theres nothing they can do about it. Deals. L based on insider its largely based on insider deals. Ae most recent time there was vote in miami last year, there was a vote on how to use public the citizens of miami voted strongly against doing that. They got to vote on it. More with the king of sports easterbrook sunday night an 8 00 on cspans q a. The chairman of the Federal Reserve, ben ber man keep and others speak about responses to Economic Crises at a conference of the International Monetary fund. Speakers included larry omers, former bank of israel governor, stanley fischer, and harvard economist, kenneth rogov. This is an hour and a half. Can we start the session . Final session of the the panel discussion. This is a case in which theres introduce no need to the speaker, so i shall not do that. In which thea case chair can think of a long list of questions which should be by the panel. But little chance of them taking the list seriously. List of two a questions. The first is one of the lessons that one should draw from the of the crises. Suggested three, but the number can be negotiated. And then the second question is for the next one . Ith this in mind, well keep the order, the first round of 15 minutes each or Something Like this. Ben, ben, rst is please . Thank you, olivier. Pleased to participate in this event in the honor of stanley fisher. My teacher in graduate school, hes been a role model advisor every since. An expert on financial crises, about the subject and served on the front lines, to speak, notably in his role of managing director of the imf in the emerging market 1990s. Of the stan helped to fight hyperinflation in israel, in the s, governor of that nations central bank, he managed Monetary Policy to mitigate the the recent crisis on the israeli economy. Housing ently, israeli prices moved upward, stan became doctor ate and early a of macrofinancial policies to preserve financial stability. Counseled his students to take an Historical Perspective but is good advice particularly helpful in understanding financial crises which have been around far long time. As i noted, i think the recent Global Crisis is best understood panic transposed to a novel st titutional context of 21 century financial system. The appreciation of the arallels between recent and historical events greatly influenced how i and many of my colleagues around the world to the crisis. Besides being the fifth anniversary, the most intense of the recent crisis, this of therks the centennial founding of the Federal Reserve. Its appropriate to recall, federal , that the reserve itself was created in response to a severe financial of 1907, this c led to the creation of the National Monetary commission 1911 report was a major impetus to the Federal Reserve signed into law by president wood row wilson on december 23, 1913. Panic of 1907 fit the archetype of a classic panic, its worth discussing the similarities and differences with the recent crisis. Like many other financial panics, including the most 1907 one, the panic of took place while the economy was weakening. Nbbr, the to the recession had begun in may of 1907. Of preFederal Reserve panic, money markets were tight when the panic struck reflecting the strong seasonal demand for Credit Associated with the arvesting and shipment of crops. The immediate trigger of the effort by a iled group of speculators to corner stock. F. Augustus hines and c. S. Had connections with a number of institutions in new york city. Failed news of the peculation broke, deposit tore fears led to a series of runs on he banks including a bank in which hines served as president. Restore confidence, they reviewed the books of the anks under pressure, declared them solvent, and offered support. One of those being that hines down. S boards stepped these steps were successful in stopping runs in the new york banks. But even as the banks stablized, oncerns intensified about the Financial Health of a number of socalled trust companies. Institutions regulating the state banks and are not members of the clearinghouse. As the trust companies worsened, the companies needed cash to of the wi and withdrawal withdrawals. Financiers led by j. P. Morgan liquidity. Did not have hey sufficient nofgs judge the solvency of the institutions. Run, the ed by a Knickerbocker Trust Company October 22nd underwriting confidence in the remaining companies. Satisfy the deposit tors toand for cash, they decided sell or liquidate assets including loans made to stock purchases. The selloff of shares and assets n what we would call a fire sale precipitated wide destructions in other Financial Markets. Increasingly concerned, morgan and other financiers, including of the bank of new response coordinated of liquidity in the limits house and the under posture withdrawals including withdrawals in the the in the interior of country. These efforts calmed the panic. However, the u. S. Financial system had been disrupted and the economy oftracted through the middle 1908. The recent crisis echoed many 1907 panic. The like most crises, the recent had an identifiable trigger. In this case, the growing subprime ion that mortgages and other credits were seriously deficient in their underwriting and their disclosures. As the economy slowed, the prices declined, diverse financial institutions, of the largest creditive firms suffered losses that were large but hard for outsiders to assess. Uncertainty about the losses led ident of to a funding for wide range of institutions. This precipitated fire sales that contributed to asset prices losses. Her institutional changes in the past century were reflect in the ifferences in the types of funding that ran. In 1907, in the absence of eposit insurance, retail deposits were much more prone to un, whereas in 2008, most withdrawals were of uninsured wholesale funding in the form of repos, and securities lendening. Steep decline in interbank lending, a form of wholesale funding was important in both episodes. Interesting is the 1907 panic involved institutions, the trust faced relatively less regulation that probably rapid growth the in the years leading up to the panic. In a recent crisis, much of the occurred outside of the perimeter of the Bank Regulation socalled shadow banking center. He responses to panics in 1907 and 2008 also provide instructive comparisons. N both cases, tb provisions of liquidity in the early stages was critical. In 1907, the United States had bank, so the availability of liquidity depended on the discretion of and private individuals like j. P. Morgan. The Federal Reserve filled the role of liquidity provider. To banks d not only but seeking to defend the panic funding markets, it supports nonbank institutions banks and estment money market funds and key Financial Markets such as commercial paper and assetbacked securities. In both episodes, though, only the division was first step. Full stabilization required the restoration of public confidence. Basic tools for restoring confidence are temporary, guarantees, rivate measures to strengthen the Balance Sheets of financial institutions. Public disclosure of the conditions of financial firms. Extent, morgan and the new york clearinghouse sed the tools in 1907 giving assistance to troubled firms and providing assurances to the ublic about the conditions of individual banks. All these tools were used extensively in the recent crisis. The United States, guarantees ncluding the fdics bank debt, the treasury departments guarantees of money market funds, and the private offered by stronger weaker ones. Quired finally that the stress test that the Federal Reserve led in findings restored banking e in the u. S. System. These measured ended the acute phase of the crisis, though five years later, the consequences are still with us. Once the fire is out, the public turns to the question of how to better fireproof the system. The the context and response is different between 1907 and the recent crisis. Following the 1907 crisis, Reform Efforts led to the founding of the federal chargeled ich was both with preventing panics and elastic currency to smooth seasonal Interest Rate fluctuations. 2008 trast, reforms since have focussed on regulatory gaps revealed by the crisis. Notably, oversight of the shadow Banking System is being designation to the by the Oversight Council of sifies for consolidating and nstitution by the fed maetzs are taken to address the instability of wholesale funding the reforms of many market funds and the repo market. As we try to make it safer, we confront the y problem of moral hazard. By central taken banks and other authorities can work against stability in the investors and firms infer they will never bear the full consequences of risk taking. Us, tan richard reminded moral has hard has no conclusion but steps could be taken to limit it. First, reform and higher capital and liquidity standards and on certain activities can limit risk takele. In the use of sticks, egulators can enlist the private sector. He Federal Reserves secar process, the descendent of the stress test in 2009 requires have sufficient capital to weather shocks but hey demonstrate the internal Risk Management systems are effective. Result of the portion of secar are disclosed analysts they need to assess the banks financial strength. Discipline can only limit moral has hard to the extent distress, e event of they will bear costs. Anthe crisis, the absence of adequate resolution process for sifie g with a failing left policy makers with only the terrible choices of a bailout or a potentially destablizing collapse. Doddfrank act of title two created an alternative mechanism sifies that takes into account both the need for moral has hard reasons to impose costs predators of failing firms and the need to protect financial stability. Fdic, the cooperation of the Federal Reserve has been hard at out this ing authority. Systemically r important firms will be increasing r stability. We want to make it far less pricey and if it happens, far costly. Every financial panic has its own unique feature that depend Historical Context and the details of the institutional setting. Done withn fisher has unusual skill throughout his career, one can, by stripping idiosyncratic aspects of individual crises, hope to elements. Common in 1907, no one had heard of an assetbacked skufrt. Single individual could bail out the Banking System. The panic of 1907 and the panic were instances of the same phenomenon as i have discussed today. Policy makers or to identify and isolate the factors behind crises allowing us to prevent crises respond ible and to effectively when not. Thank you. Thank you, ben. Next speaker, stan fisher . To thank the imf for organizing this conference privilege ing me the to have a conference named in of me. And its actually been a great practical lots of papers on lessons weve learned recent crises and from particularly , comparison of the difference asian crisis of the late 90s and the crisis that 2008. In can send the papers to the conference to those of you who were not able to be here to to them. Id also like to thank ben for everything that chairman of the fed. Believe that when the history books get written, the innovations that were made in will be recognized s changing the way in which Central Banks deal with financial crises. Ill have to and olivia has asked us to speak about some of those ways e and he told us three. Ill talk about three features of the change the that will occur, i think, in our thinking. If we remember them. There is this line that those not learn history are condemned to repeat it. Of the inventor of of as opposed to uncertainty as opposed to risk liners he used on everything. The one liner on that line was remember history also are condemned to repeat it. So i hope were not. One of the three things were going talk about. The first that what the textbooks say, what the when they write keyensian model is fundamentally right. This time is d Monetary Policy does not in fact ecessarily lose its effectiveness at the zero lower bound. Nd that theres a lot that the central bank can do to continue even when the economy the central bank Interest Rate effectively zero. That we from what the fed has this crisis, the programs in easing particular. There is controversy about how those programs are. Theres also been a a large empirical work done on those ectiveness of programs. Ben in his 2011 kansas city gave a list of the empirical work that had been issues. These it was very hard to reach the the unorthodox ineffective. They appear to be effective and that by ntially do working or either the provision markets ity or the where liquidity has dried up. Rate changing interest other than the central bank Interest Rate moving for longere in markets where term Interest Rates are determined. So in addition in this context, the ed tried to invent concept name a concept called credit easing. Not sure what credit easing was is very be, but it close to the concept of the maker of nk as market last resort as opposed to the bank as lender of last resort. Fed acting in that role in for instance the commercial paper market early in crisis when that market dried up. Nd a very important source of financing short term financing appeared to be unavailable and the fed went in revived that market buying commercial paper in appropriately large quantities. And there have been other examples of the fed as market resort. F last at least contributor to making for instance its current quantitative easing backed on mortgage securities. So i think the textbooks will have to Say Something other than they used to say and the 12th tell you edition of fisher and starts and well shortly note that the previous when the central bank switches to zero, you have fiscal policy is not entirely correct, that you can keep going with both policy. And fiscal and if you dont want to call it monetary, you can call it central bank policy. Better to on, it is fix banking and debt problems to rely on regulatory forbearance. Is a lesson that we knew in the asian crisis. Nd it was understood by policy makers in the United States. T was understood in particular by the speed with which the nited states dealt with problems of of the banking the stress test which were undertaken very early after brothers. Pse of lehman that was really remarkably quick hat those actions were undertaken. I had thought when i read about from a distance that the fed was possibly taking a risk in undertaking the tests and being willing to the results. Because the results had been bad. Thought the consequences would be serious. Was not the fact, case as explained to me by someone else. The systemthe top had the capital to recapitalize had been what at was needed, and what was revealed by the stress tests, problem illustrates a with with the contrast between what was done in the Banking System in the united what was done in the in ing system in europe which at this stage, the problems of the Banking Systems has been left to and theyre lators only now moving into the banking ans a it theyre doing quality review that is to say an examination of the quality of assets that the banks hold, which is to say an assessment of quality of the capital that hold and then well move into the banking union. I think before we all roll our say how very slow, we need to realize that making a assive structural change like sending up a european banking at the same time as youre inling with a massive crisis the Banking System is not a enterprise. And i dont believe that the is e theyre on is particularly slow given the given the situation. I do believe that the that he minimum slowness that were seeing now is holding back uropean recovery and that the quicker that can be done, the better. That would be. I think the third lesson we financial that the system is a system. Regulated on o be that basis which is the rationale for macroprudential supervision and the concept of macroprudential supervision. That is that the system the needs to ask tem itself what are the interactions system thatinancial could lead to problems over and that would arise for individual banks that got the trouble and, of course, quintessential example is the crisis. Rothers a bank which was sort of being a size and possibly not quite is possibility not being quite comprehended just extensive it were its interactions, how that event led to a very wide spread global followed by a wide spread Global Financial crisis. And there is no question but that in every country, the shifted now, this eing an decision of a discussion of how to do macroprudential supervision. Hard. Is is very because in almost every country, regulators. Ultiple and in israel, there were three. Getting the three to hard. Rate was very in fact, hasnt been quite achieved yet. The United States has many more regulators. Nd the framework has been set up to get them to cooperate. Hopes that much that will be possible. Now, in the end, the central play as a central role to in most of these in that type of supervision, because in the end, it is likely or not impossible that you will end up central bank to act as lender of last resort legally possible. To so the central bank has be one of the central elements in building the macroprudential system of and the macroprudential supervision, treasuries always are. Because when banks are deal ent, you begin to with calls on the public purse typically require treasury treasury participation. So those are two essential elements. The rest of the institutions supervised. Be and then the rest of the system which is called the shadow system, but therell always be a shadow banking succeed in if we pulling the current unregulated regulated s into a network, Something Else will asrge outside of that system a way of avoiding the regulations and taking advantage avoidance of those regulations. So, its going to take a lot to get the macroprudential systems working. I believe that the way the bank of england has done this is promising. Well just have to watch how well that works. A bank of england has Financial Policy Committee as well as a Monetary Policy financial nd the policy committee has a slightly membership than the Monetary Policy committee, the the man the governor of central bank is the chairman of committees and the Financial Policy Committee as the responsibility by law for supervising the entire financial system. And were going have to watch how that works. Takes me over to the second set of questions that olivier asked is are we better equipped the next crisis . The answer is we are better areas weve he dealt with and to help set up improved systems. But, the harder answer is that you very hard to know until do a lot of stress tests and that the ultimate stress test is reality throws your way. Hard to be sure. Of the for example, fact that the that the Financial Authority set up by british in 1997, which was elegantly done, convinced many people this was the way to go. That was what you should do a inancial Supervisor Authority outside of the central bank charged with responsibility. Macroprudential. But the idea was the same charged with that responsibility would be the right answer. Hile it was not subject to a 2007 or reality until 008, with the Northern Iraq crisis. And it didnt succeed. It was followed by the first runs in britain in 140 years. Not know for sure the systems that are set up are, in fact, capable of dealing with the tests they may face. We certainly can do is systems. Est those nd set up a variety of exercises in which theyre examined under circumstances they can think up outside experts can be asked to think up. Can be asked to think up. And to ask how would we deal with this crisis . With that e deal crisis . What powers do we have . That we need. What powers do we not have that we need . We will have to tress test the regulatory systems as well as the financial systems. So that is one concern that in area and in others, the measures we have undertaken, we effective they are until theyre actually stress tested by by experience. And there is, of course, another which is as has been mfa sized today, crises have many different sources. The enerals prepare for last war. Conomists prepare for the last crisis. Lost war is the very similar to the next war. Sometimes it isnt. I spent a lot of my time as governor looking in the my eyes could see and being sure that something was right behind me. And theres going to be some none of us thought about and would hit us with considerable force. Like thatrisis wasnt except in one sense. If you asked me in 1997, i know wrote about it, do i expect to have a major start in the advanced countries, i probably would have said no. That sense, it was a surprise, of course, as time 2007, n and we got to 2008, the presence of that became less less implausible, and eventually became effect. But we will need to keep asking urselves, and, again, we have to do this by actually sitting down and asking how we would deal with the variety of if they should occur. Well have to do those things keep on doing them because financial crisis originate in places Economic Crises originate in even more different places. To keep asking ourselves, what else is it . To think about and eal with to make the economy operate with fewer crises and with greatest stability. Thank you. [ applause ] wargof. Speaker is ken thank you very much. To speak at this event in honor of stan fisher as a s many contributions scholar, as a policy maker. Think all of us here who have worked with stan, you know, him. Recognize both as an economist, economist, and then he became a policy policy maker. And i think on the first, when i student and maybe just a bit after, there was a war going on in macroeconomics the new neoclassicals they determined the new keyensians, they didnt get details. Other. Agreed with each felt like the only person that both sides respected was stan fisher. The uld sit there in middle. Maybe john taylor also was there. Aghast at as just that, at how he managed this. Should say i think it was resolved by both sides deciding they were right and continuing to believe they were right. Story. Ats another and then we heard a lot of talk, of course, of stan as a policy policy maker. I had a lifelong professional stan. Ong experiences with and many people have spoken. I will say, you know, one thing and d from him was also i think not both on the staff. Economist and also as a student is he has a engaged which we had at lunch, but also he has a very balancing praise and constructive criticism, which is a very hard thing to do both as and as a professor. And really shows his class in doing that. I will go on to take up the topic. Podium with four men who had extraordinary experience dealing with financial crises. Theyre all going to be historic figures and rather than go on to a couple of narrow lessons about i think maybe would be for another occasion and have said, i ople want to pick a couple of points. If you think youre dealing with a liquidity crisis, and ill come to that. Think that is, it might be systemic. This might be something thats bring going to, you know, down a region, bring down the economy, you need to react very very creatively. Nd i think all of these gentlemen have shown extraordinary creativity early this policy career, larry the mexican with crisis and, stan, i think you ad just arrived at the fund when that happened. And one of the things that was came one money out of nowhere. The Exchange Rate stabilization was somehow. S. Used to bail out mexico. Congress at that time didnt they could do that and hasnt stopped them. Even generated some from across the street. And i remember larry, i was talking with him about it really still in the late 90s, visiting us at prince ton. Maybe he was sitting with me well, you he said, would have done that, right . I go, yeah. It was very creative. And certainly you can look at of the things that stan did during the asian crisis more policies, with a ael, where it isnt just question of courage, its a question of thinking of it that you might do it. Course, the you know, it would be hard sitting here bernanke who all of his cademic colleagues have commented on the extraordinary activity the fed did during the nobody ust doing things imagined stan talked about some of them. Had to remember waking up one day and finding out they made the investment banks to banks so bail them out. I thought i was living in an alternate universe or something. This, is way out of the box thinking. And olivia, i wont pick on you much. Because youre still in the thick of it. But the 4 inflation target, you were crazy. Now, maybe not so much. So i guess one of the problems practically as a policy maker that all of them its a ed is that when liquidity crisis and you just know its a liquidity crisis, you print money, generate money, bail them out. The fact is there are very few that really fit the diamond mold. We teach that model because its so simple and nothing else is going on. But actually, there are other models. Think of the alan gael model solvency and liquidity crises, its much more complicated so people dont much. It so in the real world, its a question of how much is a olvency crisis, how much is a liquidity crisis. And i know when i was in the from 2001 and 2003 chief economist and involved in some of these, its a liquidity crisis, a solvency crisis. Reach completely different conclusions on what youre going to do. Nd these are these are things that are very difficult judges are made. Something back to that jeff zacs said earlier, i think, something, very, very important. To have the diagnosis, you need some information. And i must say, there are cases arrives in thent emergency room and hasnt seen a doctor, you know, for some condition which has now become severe. Its a lot harder to treat the patient and theres certainly cases like that. Creativity is y one lesson. Nother one is if its the liquidity crisis overwhelming force, you dont stop to wonder work. S going to you do everything. And i think we saw that particularly in the 2008 crisis. The kitchen sink. If that doesnt work, the the the e chair, chair up the tiles, trying to save your family. You you do everything thats possible. Framed the ier question, it was something, what do you do after the crisis. And that hits on one of the problems. When is after the crisis, you dont know when theyre going to aftershocks. And the case of the recent crisis, there were things early on. Euro popped up where it was ery hard to know what going to happen next. I think that some of the some the perhaps policy corrections that should have een made were based perhaps on overly rosy forecasts of when it would be over. Certainly a trium triumphalism that it was okay. Some of the forecasts were too rosy. Austerity, its also what you spend on it as it evolved, clear if you had that it was going to take a long time that financial a long slow aftermath of something kevin have written i about. You might have thought about oing long Term Investment projects. If its going on in five years, thats okay. Youre not necessarily trying to it all at once. This is very difficult. A very difficult decision, one hat worries me the most when you look at the history books nd try to draw lessons from this is how much do you just bail everything out. And how much do you have some writedowns . I think that really needs to be looked at. Two ofr example, i think the more concrete things were in should of mortgages, the government had just bailed out some of the subprime mortgages with maybe some kind equity sharing . Proposal. Stein has a many others around about that. F and, of course, i think in the europe, theres solvency, theres liquidity. A lot of liquidity, but theres and some places and looking at debt writedowns would of sense. A lot let me just move on to sort of postcrisis. Just a huge issue. I think at the end of the day, a world where we have less plain vanilla debt is what you want to do. Debt crises. U get so a series of papers in a book banks ought to have to raise more of their equity. Ith its called capital. They mean how you find the banks. I think the spirit of that makes a lot of sense. Bilo rmer coauthor jeremy who is also a student of stans nd paul clamper have a another version of this where they describe it as banks rinting their own money which you basically get paid in equity when things go sour. Very good these are ideas. Having richer f forms of debt, bob schiller has newer angelistic about forms of debt linkled to gdp. Advertisement t that argentina was the first to try it. But i think it is a good idea a link to housing prices, link to commodities. And these involve legal changes. They involve a lot of changes in this. To be able to do but i think the general spirit have less plain vanilla debt is what you want to have. That may involve regulation. We have regulation about the monopoly having a over currency. But we allow the very close substitutes. Good. Ink its but maybe in their ways its not so good. Maybe we want to have a future atm at the have an fed instead of intermediated through a bank. Here could be some Service Contracts there. If you want a better deal. You want more interest on your money, then you can buy what is basically a bond fund may be very liquid but youre not guaranteed in a youre going to get paid back in full. And i would think it would be a wonderful future where our look at these plain vanilla bond Bank Deposits at our own children look dvds, that that is just, what . Do that . To thats so crazy. Anymore. Do that and i think there is hope to do that. We need more hink Public Education about the sector, about finance in general. And i speak certainly at public tv, radio, internet, but much ore broadly, hopefully providing balanced analysis and maybe helping them understand the complicated contracts they buy because we dont have anything except an atm at the bank. Finally, of course, the political system is at the core really deep financial crises. Reform here. Can we ever not have financial crises . Depending on how you look at it. Heard someone say i think the imf will always be in business. We have a human element, i think, that will be with us for a long time. Ut i do think that we really can evolve the system more ambitiously and maybe do better. Thank you. [ applause ] the last speaker is larry somers . Im very glad for the here. Unity to be had an occasion to speak some years ago about stans remarkable accomplishments a the imf. When he left the and i had an occasion some months ago to speak about his at rkable accomplishments the Israeli Central Bank when he bank. The israeli central so i will not speak about either accomplishments this afternoon. Instead, the number that is in a number that i would guess is entirely unfamiliar to most of the people in this room, but its familiar to all of the stage. On this ,462. Hat is 14 course number that stan fishers course in monetary economics at m. I. T. For graduate was. Ents it was an important part of why life as i spend my have as a macroeconomist. Suspect that the olivier and for ben and for ken. It was a remarkable intellectual and it was remarkable also because stan never lost this was he fact that ot just an intellectual gain getting these questions right made a profound difference in lives of nations and their peoples. Leave it to others to and israel he imf and i will say to you, stan, all of uson behalf of for 14. 462 and all you have taught us ever since. Agree with the vast majority of what has just been said. The importance of moving rapidly, the importance of liquidity, decisively. Allowing ance of not languish. Problems to the importance of erecting sound comprehensive frameworks to crises. Future were i a member of the official discourse at d some length on each of those hemes in a sound way or what i would hope to be a sound way. But im not part of the official sector. Going to talk about that. I am going to talk about seems to me e that to be profoundly connected. Nd that is the nagging concern that finance is too important to entirely to financiers. And i think greed our agreement is warranted, that remarkable job was done in the 20072008 crisis. That an event that in the fall the 08 was by most of statistics, gdp, industrial world ion, employment, trade, the stock market, worse the fall of 20 1929 and winter of 1930 ended up in a little bears very resemblance to the great depression. That is a huge achievement for we rightly celebrate ben and many others and that hugely will be a mportant one the next time there is a panic. That time will surely come somewhere and some place. Ut there is, i think, another spect of the situation that warrants our close attention and insufficient ive reflection. And it is this the share of or women or adults in the who are working today is essentially the same as four years ago. Our years ago the financial panic had been arrested. Been paidp. Money had back. Credit spreads had substantially normalized. There was no panic in the air four years ago. Was a great achievement how rapidly that happened. But in those four years. Share of adults who are working has not increased at all. Fallen further behind potential as we would have it in the fall of 2009. The American Experience is not completely unique in this regard. Experience is not completely unique as ken and car documented in as crises. Of financial i remember at the beginning of the clinton administration, we set of longrun Global Economic projections. Gdp today is about half of what we believed it the imf believed it would be at that time, what the world bank believed it would it is a central pillar of and classical models eyensian models that its all about fluctuations. Fluctuations around the given mean and what you need do is have less volatility. A set of older ideas hat i have to say were pretty 14462, stan. Ted in went of older ideas that under the phrase, secular stagnation are not profoundly in understanding japans experience. Not be without relevance experience. Let me say a little bit more why im let to think in those terms. You study the and prior to the crisis, bit s something a little odd. Many people believe that Monetary Policy was too easy. Everybody agrees that there was vast amount of imprudent lending going on. Everybody believes that as it was experienced by house excess of its reality. Oo easy money, too much borrowing, too much wealth. There a great boom . Capacity utilization wasnt pressure. Great nemployment wasnt under any remarkably low level. Was entirely quiessant. So somehow even a great bubble wasnt enough to produce any in aggregate demand. About the period after the financial crisis. Always like to think of these analogous to a power failure or analogous to what would happen if all of the shut off for a time. The network would collapse. Would go away, of course, ould, drop very rapidly. There would be a set of economists who would sit around that electricity was only 4 of the economy and so if the electricity, you couldnt have possibly lost more than 3 of the economy. People in minnesota and chicago and stuff writing that paper. Be stupid. D it would be stupid. And wed understand that somehow we didnt exactly understand in the model that when there wasnt any electricity, there wasnt going be much economy. And something similar was true financial flows and financial intra connection. And so thats why its so lights back get the on and thats why its so important to contain the financial system. But imagine my experiment where months, months or two 80 of the electricity went off. Would collapse. But then ask yourself, what do you think would happen to the gdp afterwards . You kind of expect there would be a lot of catchup . Hat all of the stuff where the inventories got run down. Get produced much faster. Things ct once normalize, you get more gdp than had. Otherwise would have not that four years later, youd till be having some ubstantially less than you had before. Something odd about financial normalization, if problem at the whole was, and then continued slow growth. So whats an explanation that then conventional macroeconomic thinking leads us in a very serious problem. We all seem to agree that whereas you can keep the at a low nds rate evel forever, its much harder to do extraordinary measures beyond that forever. But the underlying problem may be there, forever. Its much more difficult to say, only needed deficits interval of the aggregate demand aggregate Interest Rates cant achieved given the prevailing rate of inflation. Most of what would be done under is auspices of the view at all correct, would be done preventing a s of future crisis would be counterproductive. Otherld in one way or the it and lower of the eck will libry william thats necessary. This may be madness. I may not have this right at all. But it does seem to me that four ears after the successful was reallyof crises, is vidence of growth that restoring equilibrium, one has to be concerned about a policy agenda that is doing less with than has been done before, doing less with policy than has been done before. And taking steps whose basic to be is to cause there borrowing, and inflated asset problems than before. S from this crisis and my overarching lesson that i think the world has underinternalized that it is not over until it is over. Not right nowre ly to cannot be judged relative panic. Ent of financial thethat we may well need in ears ahead to think about how we manage an economy in which nominal Interest Rate systemic ic and activity of Economic Holding our economies back below their potential. Thank you very much. [ applause ] good, we now turn to a question part of the panel. First, is there anything that wants to take up said . What the others that was a fascinating comment at the end, larry, about Interest Rate. I remember another course we had m. I. T. It was mr. Samuelson, i think a relative of yours. Where he explains we were Something Like that. Explaining why the real Interest Rate couldnt be negative indefinitely. Theres the possibility of levelling a hill so that the a omotive could get to certain destination with less fuel which meant that theres positive rate of return available for the median to long term. Real ems that if the return is negative, first of all, Monetary Policy cant get rates with erest positive inflation. Thats one thing. On the fiscal side, the return investment as long as its real as long as its zero would always be an approach, right . Would always would always be profitable at negative Interest Rates. The occasion did not permit my discussing every aspect of of what i have talked about. I do not about pauls thing about levelling out a hill. About it as a private investment, it requires you have Perfect Property rights, you can get through that which its of time reasonable to suppose you dont. If you think of it as a public of a point its sort that maybe there may be a case in some ways of thinking be a permanent fiscal expansion. Constantly taking projects of that time. Should cisely how one think about medium term and long term and medium and long term kind of licy that the ment that i made goes to o a to a very substantial extent and i think that what i attempting to raise a almost, about what is you know, i dont know whether altf6 athave it at the imf. All thef ave it at 6, all policy papers of the imf they had to y what say, they have a paragraph where course, long run iscal will be important to maintain and increase soundness place. T takes the imfs fiscal report, some question as to precisely how it be read. But it basically says every industrialized country in the long run n massive problem with respect to its fiscal situation. Thats right. But if everybody saw that it it would be think good for the people who are unemployed there. Solve it two can years from now. Then it will all be okay. But i look at the record of the and i think rs thats much less clear. Ou said something you said something which i think is worthying about. If you just ell, get a you made the point, that is obviously right, if you generate inflation, then ou can have as negative a real Interest Rate as you want. Ts often assumed from that that Monetary Policy can problem ly solve the alone. But that depends upon the as you well know, depends upon the ability of pure achieve any cy to desired inflation. No question that if you to use milton freemans you s line, that contributed to the popularization of, if you drop enough ollar bills from helicopters, theres no question that you can get as much inflation as you want. But in the classic economic exicon, that is, of course, an expansion nair fiscal policy. Because youre making a transfer. Weve done a lot of quantitative easing and the inflation rate in the united is not conspicuously higher than it was before we started. So the question of in what ways that zero Interest Rate may bind is, i e longer term think, an important one. The kind of thing im talking purely not a hypothetical possibility. I mean painting with the broadest brush the economic of japan for the 22 to 2012 has some substantial element of what i talking about. Im going to, again, use the ask a question to all four of you. Struck by what i conceived the due police us to assumption that the next crisis one. D be a financial wondering if this is intentional or not. Heres fiscal problems on the horizon. Maybe not on the scale that larry accused the imf of forecasting. But there are potential disasters. One of the lessons how world is, how appropriate the supply chains are. He flood in thailand has an effect on the world. I wonder in the end its a financial crisis which are the ones. This is just the one we got. Reactions . Any of you . Are are crises sort of entirely human made. Entries and books piecestronic readings or of paper. The different settles of tools and different sets of responses. Thats the ironic thing about about financial crises. Coming from some sense nowhere. I remember i told the story story about asking my grandmother about the great her telling me how children didnt have shoes have jobsthers didnt and the shoe factory had to be shut down. Nd the natural response from the 6yearold was why dont you factory. Up the shoe its with individuals in the financial and economic system. These are evidently very important phenomenon. We see them in emerging markets, advanced economies. They steam be a different type of problem than a than a climate crisis. You ll i believe certainly can have fiscal crises. The european at situation, i think everybody is the fact or worried by that all of the forecasts of instability that were made at the beginning of the crisis seemed not to have esulted in Major Political changes or political crises in stage. At this the question is, how long if halfway onld is only its way, how long the political continue without governments coming to power that wanted to do things which create financial crises which are more mistakes fiscal policy than on Monetary Policy. Now, they may too lead to crises because theyre not quite sure how you define a in which the toernment loses the capacity finance its debts or in which results from from Something Like that. Other sources which almost always if you think to t them will get linked some political developments. And weve been very much tied up our world of the economy per how the t asking political how citizens interact with whats going on in impacts my and what theyd have on the political system and the government. Agree t, i think we all with larry that public nvestments do low and it would make infinite sense to do more. It pays for itself. Its ort of anon issue if done in a sensible way. Thats incredibly true in the number oftes and in a other countries. I think if youre talk about crisis, i would think theres an interaction between fiscal and financial. Actually incredibly worried about the environment. Favor having a carbon tax and cut other taxes and such. Financial crisis will be first. Trying to reach a judgment about whether it was going to be war in the middle after there was going to be pervasive bank failures. Intook the ense, question to be all about financial crisis, olivier. But i would in sort of a way, relate to the spirit of your which seems to me if burger, therekindle question you come away with is combination of complacency and euphoria that of these crises. It feels to me like were a way complacency and euphoria. So i dont think i89s an that there were very the 35 ncial crises in years after the second world the second world war. To do it had something with the fact that people were a way in the in of the f depression and you sort of ask me today in the Global Economy, there more problems of underconfidence or overconfidence . I would think thats easy. Are many more problems of i can point to problems of to confidence, but it seems me there are more problems of underconfidence than there are of overconfidence. It will be a while quite a while before we have financial the nordics in the early 90s, japan at the end of the 1980s, thinkpression, 1907 i those kinds of crises are a long time off. I think in the world of near zero Interest Rates various kinds of borrowing can gone go on for a fairly long time. Unless, and i think this is another way of thinking about my remarks, unless you think the fact that the Global Economy is