An Interview with Rob Johnson, President of the Institute for New Economic Thinking (INET)
The former Senate Banking Committee Chief Economist talks with us about the state of the U.S. economy in 2023 and the recent closure of Silicon Valley Bank.
Hello everyone,
As you read this, the ink is drying on our latest B2B marketplace report that we’ve been hard at work on for the past couple quarters. We’re excited to share these new insights with you so please expect a big release next week in your inbox! 📫
This week we’ve put together a break down of my recent conversation with Rob Johnson, the President of the Institute for New Economic Thinking (INET). Having served as Chief Economist of the Senate Banking Committee and as a Managing Director at Soros Fund Management, Johnson offers an unparalleled vantage point into the state of the U.S. economy and recent happenings in the financial sector like the closure of Silicon Valley Bank.
We’ve highlighted some key excerpts as well as linked access to the full interview. I hope you enjoy reading about our conversation and gain some valuable insights from it.
Alex & the Applico Team
Does Jerome Powell need a more Volcker-like approach? 🔨
I talked with Rob about his experience working with Paul Volcker and how it compares to Jerome Powell's tenure as Federal Reserve chair. Rob draws parallels between the supply shock that ignited inflation in the 1980s and the present day, but also highlights key differences in labor power and unionization. He cautioned against overly hawkish policies and emphasized how important subtlety and nuance will be in economic decision-making in 2023 and beyond.
Johnson: Volcker approached a world where labor's power and labor share was much higher than what J Powell is facing in the present time. And so I think there is some similarities, but I think invoking Paul Volcker as a hero and then going off super hawkish now is not paying attention to the subtleties that are very important about this situation.
Decoupling Eastern 🇨🇳 and Western 🇺🇸 finance
With reshoring continuing to be an emerging B2B topic in 2023 (let us know if you’d like to see a reshoring deep dive in an upcoming newsletter), I found Rob’s foresight into a potential collapse of the Hong Kong banking sector after the failure of Silicon Valley Bank of great interest. The conversation explores the possibility of a global recession and the potential consequences for China's financial sector, including the decoupling of the Chinese economy from the United States and the Western financial system. For additional listening, we’ve linked the podcasts Johnson recommended with Stephen Roach and Jim Chanos.
We recorded this interview with Rob a couple week prior to release and if you’ve been following international finance news as of late, it’s apparent that Rob’s prediction is right on the money.
Johnson: If, as I've read, a whole lot of dollar loans, went into the Hong Kong banking sector and then are transformed into renminbi and used to develop firms in China, and we have a global recession and the dollar continues with higher interest rates to strengthen, do we see an outbreak of the default of Hong Kong banks?
Their currency is not convertible, and many people had hoped that the sophisticated firms … in the west would be able to inhabit the Chinese financial market, but they have opted to maintain that distance. But is Hong Kong going to be the sacrificial lamb of this dollar crisis and will China then further decouple from the United States or from the dollar system?