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Fed Decision: Taper to Begin; Kim Jong-un's Shocking Purge; Imagine a World
Aired December 18, 2013 - 14:00:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTIANE AMANPOUR, CNN HOST: Good evening, everyone, and welcome to the program. I'm Christiane Amanpour.
World markets are bracing for what's happening right now at the U.S. Federal Reserve, America's central bank. It may be the last public act of Ben Bernanke, the man who's been steering the Fed through the worst financial crisis since the Great Depression. At stake, the fate of one of history's great monetary experiments.
For over a year now, the Fed has been injecting $85 billion every month, quantitative easing, in a multitrillion-dollar push to stimulate the still sluggish U.S. economy. Whether and when to taper this stimulus has been the subject of almost constant speculation in recent months.
The market had expected it to start back in September, when Bernanke's surprise decision to keep the taps open sent shocks -- stocks, rather, to record highs. But as with any experiment, no one knows exactly what will happen when it's over.
This massive unorthodox stimulus program is one of the hallmarks of Ben Bernanke's tenure at the Fed, which comes to an end next month. Despite criticisms from both sides of the political divide, it is widely credited with putting some stability back into the U.S. economy.
Richard Quest is of course host of "QUEST MEANS BUSINESS," and he's a veteran Fed watcher, and he joins me now from Atlanta, where he's listening in for that news --
RICHARD QUEST, CNN HOST: Christiane --
AMANPOUR: Richard, thank you --
QUEST: -- I'm going to interrupt you, Christiane --
AMANPOUR: -- tell me.
QUEST: -- do forgive me. They've done it. The tapering is to start in January. Now it's classic tapering, Christiane. They're dropping $10 billion a month -- I mean, chump change, $10 billion a month from $85 billion to $75 billion. But this was not expected. The consensus or the general view was they were going to wait until January, February or March to do it.
But clearly today is Bernanke's last full throttle FOMC meeting, where he'll do a press conference afterwards. So he is going -- the architect of stimulus is going to do the press conference when we get the first measure of tapering, which has been announced today.
AMANPOUR: So what is going to happen now? What is the result of reducing this by $10 billion a month? What will it do to stocks? What will it do to the economy?
QUEST: It has symbolic, purely symbolic effect, Christiane. In numerical terms, when you bear in mind they've bought a trillion-a-year of this stuff, $10 billion is really pocket change. But it sends a very powerful signal that the economy is now growing sufficiently fast enough that the Fed doesn't believe it needs as much gas.
Now they're not slowing it down. They're just not giving it as much as oomph, if you like. I'm just going to turn away a second while I look at what the market has done. We went into this Fed meeting at this announcement, the market was up 44 points. Now it then went down by about 40 or 50 points, and now the stock exchange is up 51 points.
So we can see that the market is taking the split second, Christiane, to adjust and to factor in what, frankly, is -- they knew it was coming but they didn't think it was coming today.
AMANPOUR: So given the fact that a lot of people didn't think it was coming, many had said that, look, the economy's actually not much further along than it was in September when they decided not to taper then.
What has changed in the economy that's given Bernanke the oomph to do this now?
QUEST: I'm going to read you what they say.
"Taking into account the federal fiscal retrenchment" -- that's the U.S. government -- "the committee sees the improvement in economic activity" -- in other words, that 3.6 percent GDP number we got last week, "it sees the labor market conditions improvement" -- remember, unemployment now down at 7 percent. That was an unofficial target that Bernanke had set to begin this tapering. "Labor market conditions growing underlying strength in the broader economy in the light of the cumulative progress towards this, the committee decided to modify the pace."
This is classic, Christiane, of what we had expected was going to happen. We didn't expect it this month, but it's played out exactly as the Fed said it would, unemployment goes down to 7 percent. Growth starts to pick up and, Christiane, the tapering process begins.
But we are still a very long way, a year or two maybe away, a year, 18 months away, from interest rates starting to actually rise.
AMANPOUR: So you've been watching this for a long, long time; you've been following Bernanke throughout his tenure.
Is his tenure going to be remembered for this stimulus?
What is he going to remembered for -- and this may be his last public act?
QUEST: He will be remembered for two things, saving the U.S. economy and global economy by what he did with the Fed QE1, QE2 and QE3. He was -- talk -- I've never seen anything like the right man in the right place at the right time, the man who studied the Depression, the man who had looked at Japanese deflation.
He was the man at the helm at the Fed during this crisis. He took controversial decisions; he took decisions that, frankly, as others have said, took them to the very extremities of the Fed's legal powers, that's what he'll be remembered for.
And it's, in a way, fitting that in his last major meeting and press conference, he will be the chairman that begins -- and it is just the start, Christiane. It's a beginning of a process today. He starts the process that will unwind these extraordinary, these unparalleled, these unique times.
AMANPOUR: And very quickly, before we lose you to more study of that document, why do you think the markets are going up, that board that you're showing?
QUEST: Ah, that's another great question. And it really comes down to the heart of it. The markets are going up because as Bernanke has said and everybody has said, if they're doing this action, it's because the economy's recovering. It's because it's getting to what's known as escape velocity. It's picking up speed on its own. It doesn't need so much juice to pump the thing along.
So the messages frankly got through that, actually, this is a good thing that's being done because ultimately it means the U.S. economy is in a -- I wouldn't say very healthy; let's settle for more healthy situation.
AMANPOUR: Richard, thank you very much indeed.
And now we turn to assistant editor of the "Financial Times," Gillian Tett, who was one of the first journalists to grasp the full extent of the credit crunch early in Bernanke's tenure, and she's helped drive the coverage of that newspaper ever since. And she joins me now from New York.
Gillian, welcome to the program. Thanks for being here.
GILLIAN TETT, ASSISTANT EDITOR, "FINANCIAL TIMES": Thank you, Christiane.
AMANPOUR: So you heard the news.
Were you one of those who thought tapering was going to happen or not today?
TETT: Well, on balance, I thought it probably wouldn't happen. But I'm very pleased it has because it's not just a question of the market celebration, the fact that the Fed thinks the economy's improving. It's also a bit like a child with a Band-Aid or a sticking plaster, that knows they need to rip it off, knows that it's going to hurt but actually the sooner you get on with it, the better.
And in many ways, what the Fed's doing is a very measured, cautious approach, $10 billion, as Richard said, is a drop in the bucket compared to the $1 trillion -- yes, $1 trillion that the Fed has put into the economy over the course of this year, with buying all the mortgage bonds and the government bonds.
AMANPOUR: So, sorry to interrupt you --
AMANPOUR: -- it is a drop in the bucket.
Is it really much of a move? I mean, was one expecting more if they were actually going to taper? Or is this how tapering inevitably has to happen?
TETT: What the Fed is trying to achieve right now is a bit like a pilot trying to land a plane. They want to create a very smooth, very gentle glide path down that's so gentle that the passengers on board, i.e., all of us in the economy, hardly even feel it.
So in a sense, what's happened today is that the pilot's signal will actually, when they're no longer climbing altitude at quite the same speed, were starting to glide down a bit.
And in many ways, that's the sensible way to do it. The big problem, though, is firstly the glide path the Fed is looking for is a very long glide path. They want to spend several years trying to bring this monetary policy back to normal.
And it's going to be very hard to do that over an election cycle.
And secondly, the date that the Fed has to try and achieve that glide path is pretty patchy. So it's a bit like a pilot whose radar isn't quite working well, trying to land this plane potentially in the middle of a storm.
AMANPOUR: Well, as we're watching that big board there, showing the way the Dow is moving what is that impact now, do you think, of this policy on world economy? I mean, the announcement of the tapering, what will the impact be? Because just the rumor of it last September sparked a huge problem, for instance, with the rupee in India, into a tailspin.
TETT: Absolutely. You're quite right, Christiane, and that's actually in some ways one of the biggest questions right now for the global economy. It's going to be how the emerging market countries react because certainly early this year, the discussions about the taper had a very nasty impact on a number of countries like India, Brazil, Russia. Thus far, it does seem as if a number of emerging market countries have been trying to prepare for the surprise by improving their economic management and to a certain degree by trying to change their market structure to get ready for this.
But it's going to be a very big question in the coming days to see how investors react.
And of course the big question is whether investors start to pull their money out of emerging market countries and put in the U.S. instead in a way that could really hurt countries like India.
AMANPOUR: Let's talk about the bigger picture of the entire sort of stimulus package, this quantitative easing, et cetera. We have a map here in our desktop, which basically shows that the stock market really grew since the stimulus was launched back in September 2012
And the criticism has been, as you very well know and you've been reporting, that money has poured into Wall Street but didn't particularly go into Main Street and into the hands of those who actually depend on their savings, for instance.
TETT: Well, one of the ideas behind the whole stimulus package has been the so-called wealth effect. The idea that if the Fed could make stock prices rise and other asset prices rise, not only would consumers begin to feel more rich and likely to spend money, but you actually also might get more of a culture of risk-taking and revive those animal spirits.
The problem, though, is that at a time of growing income inequality, most of those gains have gone to the wealthier parts of society. The Bank of England has done a study which suggests that 40 percent of the gains have gone to the top 5 percent in the U.K. And it's even more extreme in the U.S.
AMANPOUR: Exactly. And that sort of inequality gap seems to be growing. And again, everybody says, wow, this shows that the economy is sort of doing better than we expected. But we've been (INAUDIBLE) for a long time that people have been frustrated in America by the sluggish recovery.
So is there a mixed message going on here?
TETT: Well, the economy is certainly doing much better now. But the fruits of those gains tend to be concentrated on big companies, the corporate sector and the wealthier parts of society.
And one of the big questions hanging over not just the Fed but the president, too, is can you actually create a sustainable recovery if the middle class isn't feeling much better off? We just don't know right now. But that's certainly one of the headaches the Fed's grappling with.
AMANPOUR: And so finally, you know, this was probably Ben Bernanke's last press conference in -- on balance, is he going to be remembered as a massively successful chairman? And what is going to change under Yellen?
TETT: Well, I'm not quite (INAUDIBLE) fan as Richard was earlier. There's in fact, one of the things that Bernanke did not do was spot the bubble earlier on before 2007. And he was pretty slow and timid in reacting to it early on.
But in terms of crisis management, he has been the grownup in the room. And in terms of providing stimulus to the economy through QE1, QE2, QE3, he's done that well. The big question, though, is if the Fed now handles the exit well, Bernanke will indeed go down in history extremely well.
If, however, it becomes clear that getting out of these extraordinary stimulus measures is going to be extremely difficult and potentially create more convulsions, it's quite possible that in fact there will be a rewrite of Bernanke's tenure in the future.
And just remember, when Greenspan retired, everyone was praising him to the skies. And in fact, he was called The Maestro. These days, that reputation is very, very different. I don't think Bernanke is going to have a similar kind of rewrite in the future; I hope not. I have a lot of respect for him.
But still, there are big questions about the -- how they get out of these stimulus measures. And today's it's really just a very small step on that road.
AMANPOUR: Gillian Tett, thank you very much for helping us to pick through all this. Thanks a lot.
TETT: Thank you.
AMANPOUR: And while nearly every nation on Earth as we've seen is affected by the U.S. Federal Reserve, one place on the planet continues to operate in an alternate universe, and that is the Hermit Kingdom of North Korea, which currently is awaiting another visit from that self-styled ambassador of peace and basketball, Dennis Rodman.
Only this time he travels there under the dark shadow of manifest brutality. His friend, Kim Jong-un's decision to have his uncle and mentor, Jang Song Thaek, executed by firing squad last week.
More purges are expected and according to nknews.org, which is a website that monitors the peninsula, Pyongyang has deleted tens of thousands of articles from the state news archives, a ruthless purge of its own recent history.
And deciphering that cryptic country with the former British ambassador is what we're going to do when we come back.
AMANPOUR: Welcome back to the program. The world's most unlikely Lone Ranger diplomat Dennis Rodman is heading to North Korea tomorrow for his third visit. This time to prepare for, quote, "the beat bang from Pyongyang," an upcoming basketball extravaganza between North Koreans and former NBA stars for the leader Kim Jong-un's birthday.
Rodman is clearly undeterred by the shocking news from there this week. His good friend, the increasingly ruthless Kim, ordered his own uncle executed last week. State media said the husband of Kim Jung-il's sister was, quote, "human scum, who dared to dream different dreams."
All traces of this once powerful figure have now disappeared from the public record, just Photoshopped out in true Stalinist style. It's been two years since Kim's father, Kim Jung-il, died, and his young son seems to be brutally stamping his own control on the system. Remember, this is someone who's already conducted a nuclear test and threatened a nuclear war.
So how to decipher what's coming next? John Everard, the former British ambassador to North Korea, joins me here to do that in the studio.
Welcome to the program.
JOHN EVERARD, FORMER BRITISH AMBASSADOR TO NORTH KOREA: Glad to be here.
AMANPOUR: This is really an extraordinary and a worrying time. Would you say more worrying than at any other time recently?
Yes, it's certainly very worrying, more worrying than previous times. It's difficult to draw the analogies, isn't it? But it's worrying because with Jang Song Thaek out of the way, one of the great moderating voices in the regime has been eliminated. And Kim Jong-un is concentrating power more and more in his own rather erratic and inexperienced hands.
AMANPOUR: Well, let me ask you, you say moderating voices. I mean, he was Kim Jong-un's uncle; he's been there a long time. He was his mentor. The indictment said that "he dreamed different dreams."
What does that mean?
EVERARD: I think it means that he had a vision of North Korea as a slightly less closed society, as a country that traded normally to get what it wanted on international markets rather than trying to manufacturer everything itself, which is what the official duty state philosophy requires.
And a man who was perhaps a little more open to foreigners than most of his colleagues in the regime.
AMANPOUR: Now again, it's surprising to see that his uncle, this young Kim, would have done that, given that many people -- clearly wrongly -- thought that he might be a hope for a bit of a reform future there.
EVERARD: Yes. I think those hopes were quite clearly misplaced. They were based largely on the fact that Kim Jong-un was educated in a school in Switzerland. People I think at the time missed the point that a lot of the dictators of the Arab world were educated in the same school. It doesn't seem to be a cradle for democracy.
AMANPOUR: People also thought perhaps his youth might have sort of introduced him to a different hope for the future. But again, clearly not. You have been poring over some of the images. It's always hard to decipher what goes on there.
This must have been a shock for the North Korean people, because they haven't seen these public show trials.
Is that correct?
EVERARD: That's correct, not (INAUDIBLE), in fact. And it's -- it will shock them particularly because Jang Song Thaek was so powerful. They'll all be thinking, if Jang Song Thaek can be removed from power and executed, then nobody is safe.
AMANPOUR: Let's see some of those pictures we have our table here and we have the big screen there. I just want to know from you what you think is significant.
AMANPOUR: OK. Well, we don't have -- there we go. Well, no, that is not exactly what I wanted but we will get back to that.
What is the motive, do you think, apart from stamping control, you've talked about sort of a reverse perestroika, if you like.
EVERARD: That's right. I think that Kim Jong-un is signaling quite clearly that not just Jang Song Thaek, the man is dead, but also the vision, as I say, of a less closed North Korea that he represented. I think this is a signal for a return to core North Korean values. And I think it's significant that the indictment condemns Jang Song Thaek for selling North Korean minerals to China too cheaply, which raised interesting question about what the right price is.
And also for what most people would regard as a straightforward commercial transaction of selling a five-year lease to the Chinese in one of the economic zones.
AMANPOUR: Well, this is actually interesting again, because most people believe that China is one of the countries with at least some influence over Pyongyang. Do you believe this was a slap in the face to China, what he did?
EVERARD: Yes, I do. I believe that Jang Song Thaek was widely regarded by the Chinese as their man, as it were, at Kim's court. And as I said at the beginning, as a modernizing influence. With him gone, China's influence over this erratic young man is much, much reduced, and they know that.
AMANPOUR: And China is -- OK, its only influence may be redundant, but it also has not been propping up Kim Jong-un as it had -- in other words it's been expressing displeasure and publicly, just had a big state visit from the South Korean president.
EVERARD: That's correct. It's allowed a state visit from the South Korean president without any talk about a visit to Pyongyang or from Pyongyang. Also since the nuclear test, it's cut cash from the avionics (ph) it gives Pyongyang. And it's made clear to the North Koreans that despite repeated entreaties, it is not going to increase aid. It is not going to reward what it regards rightly as North Korean bad behavior.
AMANPOUR: So Ambassador, what do you see when you look ahead? I mean, is it being pushed further into a corner? Will Kim lash out? Will there be another nuclear test? Will there be some more sort of tension on the international stage?
EVERARD: I think there is a significant possibility that Kim will lash out. And I say that not as speculation, but because leaks coming out of South Korea indicate that ajan aid (ph), who has been talking to South Korean intelligence, indicated that a provocation was planned between January and March the next year. We don't know what kind; but it does sound nasty (ph).
AMANPOUR: And I guess finally, with the visit of Dennis Rodman, do you -- I mean, is there any hope for some kind of basketball diplomacy?
EVERARD: I, with the best will in the world, I don't think so. Dennis Rodman himself has made clear that he's not in the business of doing diplomacy, carrying messages or anything like that. He's just going to see his friend, Kim. And I think it would be too much to hope for these visits to influence the way that Kim sees the world.
AMANPOUR: Ambassador Everard, thank you very much indeed for joining us.
EVERARD: My pleasure.
AMANPOUR: Thank you.
And after a break, we'll take another look at the outgoing Fed chief, Ben Bernanke, outgoing may seem an odd way to describe the quiet man who's been a mystery to the millions if not billions of people who've been affected by his decisions these past seven years. Now imagine there's a bit of fun behind the mask. We'll get a glimpse when we come back.
AMANPOUR: And recapping our breaking news on this program, the U.S. Federal Reserve has just announced that it will begin tapering its massive stimulus program. It'll begin tapering by about $10 billion per month from the $75 billion or $85 billion that it has been pouring in every month for the better part of the last year.
And that stimulus has been widely credited with bringing some stability back to the U.S. economy. It is also likely to be the final act of Fed chief Ben Bernanke, who's stepping down after seven grueling years as the unflappable face of the bank.
So now imagine a world where the Fed chief also has a human and fun side. He showed it last June in a speech to the graduates of Princeton University, while lauding the success of these Ivy League elites, he also spoke of their good fortune and the responsibility that goes with it.
(BEGIN VIDEO CLIP)
BEN BERNANKE, CHAIRMAN, U.S. FEDERAL RESERVE: Think about it. A meritocracy is a system in which the people who are the luckiest in their health and genetic endowment; luckiest in terms of family support, encouragement, and, probably, income; luckiest in their educational and career opportunities; and luckiest in so many other ways difficult to enumerate -- those are the folks who reap the largest rewards.
The only way for even a putative meritocracy to hope to pass ethical muster, to be considered fair, is if those who are the luckiest in all of those respects also have the greatest responsibility to work hard, to contribute to the betterment of the world and to share their luck with others.
As the Gospel of Luke says -- and I am sure my rabbi will forgive me for quoting the New Testament in a good cause --
BERNANKE: "For everyone to whom much has been given, much will be required; and from the one to whom much has been entrusted, even more will be demanded."
(END VIDEO CLIP)
AMANPOUR: Wise and funny. And we'll look forward to seeing Bernanke's designated successor, Janet Yellen, in action at the Fed next year.
That's it for our program tonight. Remember you can always contact us at our website, amanpour.com, and follow me on Twitter and Facebook. Thanks for watching and goodbye from London.