After that grass off the usual Fed discussion here and talk to you about a magazine cover of February 15th 1998 99. Greenspan
Rubin and a younger Lawrence Summers in a time of Asian crisis with dollar strength and with anticipated Fed rate increases. Do
we see an emerging market fragility which could lead to something related to the August of nineteen ninety eight that
you lived. I doubt it. In the same way. Central to that crisis was fixed. Exchange rates or fixed exchange rates were very low
levels of reserves in many emerging market countries and were debt that was predominantly or heavily are dollar denominated. I
do think that the combination of high energy and food prices are rising dollar and increasing interest rates does pose risks to
emerging markets. But I think they're not likely to be systemic and across the board in middle income countries. I'm more
concerned about countries with particularly unsound policies. Turkey would be an example or Argentina would be an example.
Countries with particularly problematic food situations Egypt would be an example. But I don't think
there's going to be the kind of massive across the board. Right. Financial distress that we saw earlier. Professor Summers I saw
a chart this week on the Bloomberg. I have never never ever ever seen in my life which is the zombie nature of Japanese yen
weakening. Again this is away from the United States. But when you see the lethargy of yen weakening given the experiment of
yield curve control how would you suggest that will end for Japan. How will that how would you suggest that all end for the
markets. You know Tom the problem with pegging financial variables whether it's an exchange rate or a long term interest
rate or a stock or a stock price is that it tends to be a much easier strategy to enter than it does to exit. And I think
that's got to be an issue for Japan. Sooner or later they're going to have to leave the yield curve control strategy. And I'm
not entirely sure what's going to happen when they do. I think in the meantime the pressures are likely to build. And as they
provide more and more liquidity it could easily lead to an even weaker yen especially given that as inflation surprised. On my
high side here market participants revised upwards their expectations of how high interest rates are going to have to go
in the United States. Well let's get back to the United States here just as a general statement before we look at nine point
one percent inflation. Are we asking too much of our central bank. We had a massive fiscal expansion. I guess we're trying to
do a fiscal unwind off this pandemic. Are we just asking too much of our central banks today as an institution. I don't think
so. I think we are asking for our central banks to analyze the economy accurately. We are asking our central banks to keep in
mind their primary mandate of price stability. And frankly I think in 2021 our central bank lost its way. It was talking
about the environment. He's talking about social justice in a range of things. It was confidently dismissing concerns about
inflation as transitory. And it made mistakes in the core functioning of a central bank including leading into highly
expansive fiscal policies rather than accommodating them as our central bank did. So I don't think we were I don't think we were
asking too much of our central bank. But I think in 2021 our central bank led us down quite badly. And as a consequence they
find themselves in a very very. Difficult position not least because they don't have the credibility that they once enjoyed
given their repeated poor forecasting record and I have to say that it's not something that's been fully fixed. Their fourth
most recent dot plot. Right. Just stating that unemployment would get to 4 percent get only to four point one percent even
as inflation came completely down. Seemed to me to be slightly implausible. And the fact that the most pessimistic person of
the nineteen member open market committee was saying four and a half percent seemed to me to suggest a
degree of highly problematic groupthink. Larry you've taken a victory lap among all on economics here with how far out front
you were on inflation. I want to go back to a modest textbook of 1948 by a guy named Samuelson. And two years later one year
later after the 1948 miracle of his textbook there was sky high inflation like the nine point one percent inflation we have now
not once but twice. We came down into the Korean War and an Eisenhower disinflation and outright deflation. Do you have an
optimism. We can move from nine point one percent inflation down relatively rapidly. I think it's pretty clear that there are
some factors like what's just happened with gasoline prices that are going to point towards disinflation. But I think that if you
look at core measures of inflation if you look at so-called trimmed mean a range of different indicators what they tell you
is that this is a pretty pervasive expansion in inflation. And my reading of the experience of the last 60 years is that those
don't tend to be reduced completely without significant economic slack. And I think if you look at the level of vacancies in the
economy the ratio of vacancies to unemployment or the level of quits you see that we have a currently overheated economy. So we
have some distance to go just to go back to neutral. You wrote an initial paper with a guy named Martin Feldstein. This is a
few decades ago to say the least Larry. He codified NBER is our measure of recession. And your colleague Jeffrey Frankel has
done great work on this actually. How do we choose to define a recession and the magnitude of recession. The parlor game right
now of recession. I've never seen the guessing of it the gaming of it. Give us some clarity on how you define recession and the
magnitude that we could see. I think the classic the classic definition of a recession is a broad gauged multi month
decline in a range of economic indicators activity. And that's something that the NBER makes a judgment
about. There's a kind of crude approximation that many economists use which is two negative quarters in a row. I think
there's a quite reasonable chance probably close probably 50 percent or a bit above that. We will in the first and second
quarters have negative growth in both quarters. I don't think that is itself sufficient to establish a recession because it's
heavily being driven by demand that draws down inventories and demand that draws in
imports. But I think there's a real risk that we'll see it through this year and an even greater risk that we'll see it
next year. I would say the odds are certainly in the far above half probably above three quarters of seeing a recession within
the next two years. And I don't think there's any reason why it needs to be a recession like we saw in 1982 or like we saw
during the great financial crisis. But I think it's not going to be a walk in the park either. I would suggest as a kind of rough
model what we saw after the bubble burst in 2000.