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Fareed Zakaria GPS

Interview with Jon Stewart; Putin And Xi Meet In Moscow Amid War In Ukraine; China's Strategy Toward Russia And The West; How The Fed Should Respond To Banking Crises; The Challenges The Fed Faces. Aired 10-11a ET

Aired March 26, 2023 - 10:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

[10:00:35]

FAREED ZAKARIA, CNN ANCHOR: This is GPS, the GLOBAL PUBLIC SQUARE. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria coming to you from New York.

(BEGIN VIDEOTAPE)

ZAKARIA: Today on the program, a rare conversation with the great Jon Stewart.

JON STEWART, HOST, "THE PROBLEM WITH JON STEWART" ON APPLE TV PLUS: Fareed, we either have the rule of law or we have no rule of law.

ZAKARIA: I will ask him about American politics, the economy, the wider world. Who knows where else we will go.

STEWART: You want to be upset about real things. But isn't that what drives comedy or art or anything?

ZAKARIA: And the big meeting in Moscow. Xi Jinping traveled to Russia this week for three days of meetings with Vladimir Putin. We know why Russia wants this but what does China have to gain from this massive show of support? We will explore.

Also the crisis continues as the ripple effects from the collapse of Silicon Valley Bank and others continue. What can we learn from past bank bailouts and crises? I will ask the historian Niall Ferguson.

(END VIDEOTAPE)

ZAKARIA: But first here's my take. The most interesting outcome of the three-day summit between Vladimir Putin and Xi Jinping got limited media attention. Describing their talks, Putin said, "We are in favor of using the Chinese yuan for settlements between Russia and the countries of Asia, Africa and Latin America."

So the world's second largest economy and its largest energy exporter are together actively trying to dent the dollar's dominance as the anchor of the international financial system. Will they succeed?

The dollar is America's last surviving superpower. It gives Washington unrivaled economic and political muscle. It can slap sanctions on countries unilaterally, which frees that country out of large parts of the world economy and Washington can spend freely, certain that its debt will be bought up by the rest of the world.

The war against Ukraine, combined with Washington's increasingly confrontational approach to China, have created a perfect storm in which both Russia and China are accelerating efforts to diversify away from the dollar. Their central banks are keeping less of their reserves in dollars and most straight between them is being settled in the yuan. They are also making efforts to get other countries to follow suit.

The Biden administration has handled the economic war against Russia extremely effectively by building a coalition of almost all the world's advanced economies. That makes it hard to escape from the dollar into other highly valued stable currencies like the euro or the pound or the Canadian dollar because those countries are also warring with Russia.

What might have been a sharper turning point for the dollar's role was Donald Trump's decision in May 2018 to pull out of the Iran nuclear deal. The European Union was strenuously opposed to this move, but it watched as the dollar's dominance meant that Iran was immediately excluded from the world economy.

Jean Claude Juncker, then president of the European Commission, proposed enhancing the euro's role internationally to shield the continent from what he called selfish unilateralism. The commission outlined the path to achieve this. It hasn't happened. There remained too many fundamental doubts about the future of the euro itself.

Dollar dominance is firmly entrenched for many good reasons. A globalized economy needs a single currency for ease and efficiency. The dollar is stable, you can buy and sell it anytime, and it's governed largely by the market and not the whims of a government. That's why China's efforts to expand the yuan's role internationally have not worked.

Ironically if Xi Jinping wanted to cause the greatest pain to America, he would liberalize his financial sector and make the yuan a true competitor to the dollar. But that would take him in the direction of markets and openness that is the opposite of his current domestic goals.

All that said, Washington's weaponizing of the dollar over the last decade has led many important countries to search for ways to make sure that they do not become the next Russia.

[10:05:08]

The numbers are revealing. The share of dollars in global central bank reserves has dropped from roughly 70 percent 20 years ago to less than 60 percent today and falling steadily. The Europeans and the Chinese are trying to build international payment systems outside the dollar dominated Swift. Saudi Arabia has flirted with the idea of pricing its oil in yuan. India is settling most of its oil purchases from Russia in non-dollar currencies. Digital currencies might be another alternative, and in fact China's central bank has created one.

All of these alternatives add costs. But the last few years should have taught us that increasingly, nations are willing to pay a price when they want political goals to trump economic ones. We keep searching for the single replacement for the dollar and there will not be one.

But could the currency suffer weakness by 1,000 cuts? That seems a more likely scenario. The author and investor Ruchir Sharma points out, "Right now for the first time in my memory, we have an international financial crisis in which the dollar has been weakening rather than strengthening. I wonder if this is a sign of things to come."

If it is, Americans should worry. I spoke last week about the bad geopolitical habits Washington has developed because of its unrivaled unipolar status. It's even more true economically. America's politicians have gotten very used to spending seemingly without any concern about deficits. Public debt in America has risen almost fivefold from roughly $6.5 trillion 20 years ago to $31.5 trillion today.

The Fed has solved a series of financial crisis by massively expanding its balance sheet, almost 12-fold from around $730 billion 20 years ago to about $8.7 trillion today. All of this only works because of the dollar's unique status. If that would have wane America will face a reckoning like none before.

Go to CNN.com/Fareed for a link to my "Washington Post" column this week. And let's get started.

As host of "The Daily Show," Jon Stewart's biting commentary defined political satire for 16 years. He won 22 Emmys, five Peabody's and last year received one of comedy's top accolades, the Mark Twain Prize for American Humor.

Today he is the host of Apple TV Plus' "The problem with Jon Stewart," where he tackles some of the country's toughest challenges from inflation to incarceration in his inimitable way. He sat down with me for a rare conversation this week.

And we are joined by Jon Stewart himself.

STEWART: But who else would it be? Fareed, it's nice to see you. I love your aquarium.

ZAKARIA: Thank you. Thank you. Exactly.

STEWART: Yes.

ZAKARIA: We can go swimming afterwards.

STEWART: Yes.

ZAKARIA: So I got to ask you, it's a big thing in the news. Donald Trump indictment. There are people -- STEWART: What?

ZAKARIA: No, just stay with me for a minute. There are people who say --

STEWART: I've been watching the live cameras at the courthouse. It's imminent. Breathless speculation.

ZAKARIA: So there are people who say, yes, you have to indict him because he has, in fact, broken the laws and there are other people who say this is going to turn him into a martyr. This is his path to redemption.

STEWART: Sure.

ZAKARIA: How do you think about it?

STEWART: The law should always take into account someone's popularity. I think that's -- I mean, what's happened to our country? For it's as though you can't even commit financial fraud anymore. You can't inflate the value of your properties when you need a loan and then deflate it with taxes? I mean, the next thing you know they're going to send you to jail instead of your lawyer and your accountant and your campaign manager and everyone else around you.

It's -- no. The idea that someone may face accountability, who's that rich and powerful, is outrageous. And this country shouldn't stand for it.

ZAKARIA: But what if it turns out to be his get-out-of-jail-free pass? It's his path to -- people will see him as a martyr, he gets hit.

STEWART: OK? I don't --

ZAKARIA: You're OK with that?

STEWART: Is that --

ZAKARIA: If he becomes president again.

STEWART: He could become president anyway. Fareed, we either have the rule of law or we have no rule of law. The rule of law does not take into account if that might make you a martyr to somebody.

[10:10:01]

I'd much rather have the conversation be, what is the law? What exactly are we saying that he did? His lawyer went to jail for this same situation for a couple of years. So what is the crime? Is it a crime? The reason --

ZAKARIA: There are people who say it's selective prosecution, that this would not --

STEWART: Everything is selective prosecution. The reason why Donald Trump became popular in the first place, and the reason why these populist movements, is that the citizenry have become fed up with the lack of accountability for those in power. We have no accountability in our financial systems. We have no accountability for the bankers. I mean, our Congress trade stocks with information they get making laws, and they do it to great success.

And they won't stop it because they're the ones in charge of making the law about it, and instead of bringing accountability to the rampant corruption that is, surrounds our government and our financial systems, the Supreme Court just changed the definition of corruption. Rather than prosecuting it, rather than holding people accountable, they just went how about this? How about, OK, why don't we just say this?

ZAKARIA: It's even better that that was that they said, you politicians, you think that's corruption? Because you're engaging in what -- we actually don't think it's --

STEWART: We're going to tell you, don't worry about it. You can influence peddle as long as you don't explicitly say, by the way, this money is so that I may influence this law specifically, and you have to lay out. Like that is what has the lack of confidence that people have in the system is -- and you even see it throughout the media. Even that conversation. Should we, should we not? It's old, but he's popular, and then it might make him more popular but not less popular.

Did he do something wrong? What was it? Explain that to us. What is the law that he supposedly violated? What are the ramifications of it? I don't see him ever actually going to jail. I personally don't even care. I just want a system that somehow finds a consistent accountability.

ZAKARIA: So in many ways, you -- at least for me you created or defined American political satire. How has that changed? I mean, it feels to me like the stuff you did, you know, the showing the video and then commenting, it's become, it's everybody does it.

STEWART: Sure.

ZAKARIA: And it's not even comics.

STEWART: Yes.

ZAKARIA: I mean, that's what Tucker Carlson does when he wants to make his point.

STEWART: Sure.

ZAKARIA: He's borrowing from your playbook.

STEWART: Yes. Yes. No, it's a real delight knowing.

(LAUGHTER)

STEWART: It's always good to arm the most cynical and worst people in media.

ZAKARIA: But do you look at it and say, now, this whole thing is commoditized?

STEWART: Well, listen. It was commoditized. You know, I wasn't doing it out of gracious altruism. I mean, we were selling Budweiser. It's always been commoditized. It was -- I think it's -- you know, there's a lot of talk, so exposing absurdity or exposing hypocrisy. What's the point? The point is, is that this is a relentless fight.

They always talk about, you know, the arc of the moral universe is long, but it bends towards justice. But it doesn't bend towards justice by gravity like you have to bend it and there's a bunch of people trying to bend it back. And you use every tool in your arsenal, and none of them will be, you know, the one thing. There is no panacea.

It takes, you know, all those different things doing in Washington over these past few years gave me a great understanding of how things actually get done incrementally, and sometimes in one fell swoop. But our country is held together by hundreds of really talented legislative aides, their bosses, many times, are wind-up dolls who really don't know, I mean, half of it. If you go down there, especially the Senate is like an assisted living facility, like the intramural sports at the Senate.

So, you know, it's held together by these legislative baits that are relentlessly trying to do the right thing, and by the thousands of grassroot activists that are trying to get access and they're blocked by a moat of lobbyists and moneyed interest. That prevent the people in that building from doing the work that best benefits all the people outside of that building. And that's the process.

[10:15:04]

So you have to use every tool you have to permeate that force field.

ZAKARIA: But presumably the people there who are Republicans, who are conservative Republicans, those aides think they're doing the right thing, and they're trying to get across there.

STEWART: Sure. But they're doing it -- they're honest. Look, if you can find honest brokers down there, you can work with them. What I'm saying is that force field around it is made up of not honest brokers. It's moneyed interests. It's lobbyists. It's people who are weaponizing misinformation and disinformation. And all of those form this. It's the most cloistered universe.

ZAKARIA: So you found you could deal with very conservative Republicans.

STEWART: Of course.

ZAKARIA: Because there was some way to find common ground.

STEWART: People of good faith. Now there were huge disagreements about certain things, but when you found someone of good faith, you could always get something done.

ZAKARIA: When we come back, I asked Jon Stewart about CRT, that's critical race theory, and cancel culture.

(COMMERCIAL BREAK)

[10:20:14]

ZAKARIA: And we are back with Jon Stewart.

So nowadays when you watch Republicans campaign against Democrats, they don't campaign much on what they used to which was, you know, the Democrats were big spenders or whatever. You know, it's all about critical race theory and it's all this cancel culture stuff.

STEWART: Sure. Yes. The biggest problem.

ZAKARIA: Why does it work and what should Democrats do? Are they falling for a bait in doing this, in talking about these issues?

STEWART: I mean, I don't know if they're falling for a bait, but, I mean, I think, again, I don't even think half of the Republicans who do it even mean it. I think it's -- they think it's --

ZAKARIA: They think it works. Right.

STEWART: What would you do if you were out of governing ideas? If you didn't know how to govern a country of this magnitude, and a country of this diversity, and you basically are running on government is broken, and then when you get an office, you have to be terrible to prove the original premise like it must be great to be able to do that.

This government doesn't work and by me not funding it and breaking it, see? See, what I told you? Keep me in power. If you don't have ideas on governing, what do you do? Well, you do the purposeful distortion field that they create. And by the way --

ZAKARIA: But it works, right, because it's emotional.

STEWART: Does it work?

ZAKARIA: I don't know.

STEWART: Who's the president?

ZAKARIA: Well, but --

STEWART: I mean, it doesn't necessarily work. It gets people upset. It gets them angry. It makes them fearful about threats and -- you know, hyperbole, and makes them afraid of things that can't even really be defined. Meanwhile, ignoring so many issues that --

ZAKARIA: Yes, it's a kind of real appeal to, you know, a base that you stoked up. When Sarah Huckabee Sanders did the response to the State of the Union, I know that she kept talking about CRT. She didn't even bother to spell it out. I would assume most average Americans don't know what it's for. STEWART: But, Fareed, that's -- the guy who came up with that, that's

purposeful. His plan is make everything CRT. And by the way all this diversity initiatives and CRT and all those other things are only there because we refuse to actually fix the real problem. The diversity inequity initiatives are a sav. They are to pacify and mollify because we won't actually do the real thing. We won't actually dismantle the vestiges of all the systemic racism and all this systemic classism and all the systemic gender issues.

We won't actually dismantle that. But what we will do is you can have an office in the building. And every few months we're going to have to sit and listen to you talk for like an hour. And so we're good, right? Like it's a country that won't face -- I'll explain it like, OK, the NFL, right? You know the Rooney Rule? The Rooney Rule in the NFL is because there are so few African-American coaches, you have to at least interview like one of them.

So that's the rule now. Instead of it's the thing you put in place instead of looking at the owner's box, and realizing, oh, right. That's just the legacy of the economic segregation that's been in our country since its founding, so we're never going to deal with that. So here's what we are going to do. A diversity and equity initiative, we're going to have to talk to one black guy. Are we good? I think we're good.

But that's what I'm -- what I'm trying to say is we don't -- the thing that they're pointing at is the thing that's in place because we won't do the actual thing.

ZAKARIA: You sound like somebody who has a lot of anger and a lot of rage. And yet you're very funny. And like, how do you keep all that together? There's a part of you that's very optimistic. There's a part --

STEWART: I'm very optimistic.

ZAKARIA: But you sound angry. I don't mean to sound like your therapist.

STEWART: No, no, no, I understand, but wouldn't you? Why isn't everybody, about real things? I mean, you want to be upset about real things but isn't that what drives comedy or art or anything is emotion, whether it's anger or joy or love or -- what, are there other emotions?

[10:25:06]

There's got to be some more than that. Sadness probably in there.

ZAKARIA: Envy.

STEWART: Hate, envy. OK. That says something there, Fareed.

ZAKARIA: That was just filling in the gaps.

STEWART: No, no, no, I understand. That just top of mind. That was top of mind. You know, these are -- it's hard to watch. It's hard to watch a state -- you're talking about Sarah Huckabee Sanders. It's hard to watch a state that's like 48th in, you know, infant mortality and child poverty and literacy, make a big deal about --

ZAKARIA: And won't take Medicaid (INAUDIBLE).

STEWART: -- about a trans girl that wants to play soccer that doesn't -- that happens like once every five years, though. Like it's hard to not be angry about people that try and distract from the real things that people face with weaponized nonsense.

ZAKARIA: I get that. My point is, but then you also turn it into humor.

STEWART: Sometimes.

(LAUGHTER)

STEWART: Sometimes I just turned it into anger. And then sometimes I just turned it into gummies and late at night I just take a bunch of those. And that helps alright.

ZAKARIA: All right.

STEWART: For those of you watching at home, don't do drugs. Stay in school.

ZAKARIA: We could go on forever, but we do have a time constraints.

Jon Stewart --

STEWART: Good to see you, man.

ZAKARIA: Always a pleasure.

STEWART: Thank you.

ZAKARIA: Next on GPS. Xi Jinping went to Moscow this week for a splashy summit with his Russian counterpart Vladimir Putin. Was this a show of solidarity against the West or business as usual for two longtime friends? We will explore.

(COMMERCIAL BREAK)

[10:30:57]

ZAKARIA: Just days after the International Criminal Court issued an arrest warrant for Vladimir Putin for alleged war crimes committed in Ukraine, Xi Jinping traveled to Moscow for three days of cordial meetings. The U.S. said that Xi's visit provided diplomatic cover for Putin's war.

Well, what really came out of the talks? We know what Putin had to gain from such a summit. But what did Xi get out of the trip? And what happens if Taiwan's President Tsai meets Kevin McCarthy in the United States this week, as is being reported? Here to unpack all of this is Cindy Yu. Cindy is an editor at "The Spectator, "and she hosts the magazine's podcast "Chinese Whispers." Cindy, welcome.

So, first tell me that the answer to that question I posed. What is Xi Jinping getting out of this? It's a fairly remarkable show of support at a critical time for Putin.

CINDY YU, HOST, "CHINESE WHISPERS" PODCAST: Yes, absolutely. But China is playing a very long game here. So, I know, Russian relations haven't been this good really since the fall of the USSR. And we've got to bear in mind China's long term foreign policy aims when it comes to Russia.

They share a very long border, a border that is not militarized at the moment because of the friendly relations, something that Xi Jinping doesn't have to think about on his northern border at the moment. China's also thinking about its energy security. Russia has huge natural resources include vast weights of natural gas. All of that, instead of going to Europe right now is going to go to China. So, we're talking about these pipelines that will be built connecting Russia and China increasingly in the future.

And China is also thinking about the geopolitical wide game going on at the moment. You know, why should China's support the West against Russia when the West is increasingly hostile against China? So, they're thinking about how to prop up the Putin regime and make sure that it gets everything that it wants from this supposed neutrality.

ZAKARIA: It does seem like as you said, relations with the West and with the U.S. have gotten particularly hostile and relations with Russia have gotten closer and closer. Do you think this is now, you know, the kind of -- these are the teams, this is Russia as locked in which China and opposed to the West?

YU: Russia is certainly locked in with China now. From Moscow's perspective, I don't think they have very much choice if they want to continue this war in Ukraine, which I don't think they can end anytime soon anyway. But from Beijing's perspective, you know, Xi Jinping holds many more cards than Putin does at the moment. And I think the reason that Xi is trying to say that he has been neutral on this war is because, yes, he wants to be friends with Russia. He wants Russia supporting any coming great power rivalry. At the same time, China's trade with the U.S. and the E.U. and other western powers is 10 times as much as that of its trade with Russia, even with the increase that we're talking about here.

So, China is not going to want to (INAUDIBLE) as the Chinese say when it comes to relations with the West. So, it's trying to kind of triangulate both sides while not angering either side. And I think so far this balancing act over this first year of the war has worked out relatively well. The question is how long China can continue on this -- on this precipice because pressure is growing and as the war grows, dynamics will change.

ZAKARIA: Do you think China imagines a world five to 10 years from now when there is a dramatic drop in its economic ties with the West?

YU: I think people in Beijing are thinking about that at the moment as a possibility. At the same time, you know, from my conversations with people in the Chinese diplomatic community it is interesting how optimistic sometimes they still are. That money will still win out in the end at business talks, particularly from my perspective here in London.

I mean, they might think that the U.S. is a foregone conclusion in terms of decoupling. But I think there are some hopes within the Chinese community that actually the E.U. or the U.K. can actually be swayed to have less of a hardline approach to China.

[10:35:04]

And, you know, when it comes to western unity when it comes to that question of trade, I don't know if the Chinese are necessarily wrong about that. If you look at the way that Germany has kind of been reluctant to go very far in its support of Ukraine throughout the last year, I think that you know, in some quarters of the West pragmatism is still winning out. And China is hoping that it can probably split the rest of that. It wouldn't be such an absolute decoupling in the future.

ZAKARIA: And what about Taiwan? How dangerous is the situation if President Tsai does meet with the speaker of the House? Do you think -- I mean, what is the danger there? Are we at some kind of a very, very precipitous moment?

YU: I think, we have to be careful of escalating the spiral that both sides are -- don't want to go down but, you know, each side ramps up and admitting that he does go down to. When it comes to Taiwan, the fundamental reality is that the People's Liberation Army is not ready to take Taiwan successfully or quickly.

So, we're talking about a joint operation here, which would involve land, sea and air. And I think that's a fundamental here. The PLA is not ready.

At the same time, if China thinks that peaceful reunification is not going to happen, or that outside forces are going to be taking Taiwan further and further away -- I was interviewing a senior colonel of the People's Liberation Army on my podcast just this week, who said this that these are the thresholds where if -- let's say America triggers Taiwan to move ever further away from the People's Republic of China or if Taiwan declares independence then those will be the red lines for Beijing really to take military action.

Now on this visit, I think Presidents Tsai was very shrewd in saying to Kevin McCarthy, please don't come to Taiwan. Don't do a Nancy Pelosi. I'll come to you instead. And I think that does take some of the sting out of the meat. But that's not to say that China wouldn't throw some something of a small tantrum anyway. But I think for now we don't have any smoking gun as it were that China is planning an imminent invasion.

ZAKARIA: Cindy, always a pleasure to talk to you. Thank you.

YU: Thank you.

ZAKARIA: Next on GPS, the U.S. economy is facing two crises, rippling bank failures and stubbornly high inflation. Can the Fed tackle both? Has it been able to in the past year? Niall Ferguson will tell us.

(COMMERCIAL BREAK)

[10:41:33]

ZAKARIA: This week all eyes were on Fed chairman Jay Powell as he announced the ninth interest rate hike over the past year continuing the banks' fight against persistently high inflation. Why was this decision so closely watched? It's because ever since the collapse of Silicon Valley Bank, the Fed is caught between two competing mandates. One is to lower inflation by raising interest rates, making it harder for consumers and businesses to borrow and therefore spend. The other is to keep banks stable, and many banks are seeing their holdings lose value amid rising interest rates.

The Fed hopes to do both, but it won't be easy. What can history tell us about what course the Fed is likely to take and what will happen to the global economy as a result? My next guest is the economic historian Niall Ferguson, the author of "The Ascent of Money, A Financial History of the World" and many, many other great books.

Welcome, Niall. Let me first ask you, do you think that the Fed has so far handled this banking crisis appropriately?

NIALL FERGUSON, SENIOR FELLOW, STANFORD UNIVERSITY'S HOOVER INSTITUTION: Well, one of the things we discover when we go into financial history is that when a situation like this arises, whether you're a dove or a hawk, you have to do something because if you do nothing, and you get a generalized bank run, then you face a very dangerous situation indeed.

So, I think in the short run, the Fed had to do something. And the thing that it had to do was to reassure uninsured depositors, people with deposits in above the Federal Deposit Insurance Corporation's insurance maximum that they'd be OK. But if you take a step back, it's a disastrous situation to have got into.

The Fed shouldn't have had to do this. The FDIC shouldn't have had to do this. Something went terribly wrong in the oversight of not only that bank but other banks that got themselves into this situation.

ZAKARIA: And now, Niall, the Fed faces this dilemma, which is on the one hand, it has been trying to make it more difficult for people to get loans and things like that. But now, in order to solve this crisis, it has to kind of do the opposite.

Talk -- tell us a little bit about historically how do you resolve these two tensions? To explain to people, in the past when you've had crisis it has been a little easier because the Fed could always cut the interest rates as a way of solving the banking crisis. But now they're in this position where they're fighting inflation at the same time that they have to provide easy money for the banks.

FERGUSON: Well, first don't cause an inflation surge, and one has to look back to the mistakes that were made in 2021 to understand how we got here. There was a big mistake as Larry Summers pointed out on the fiscal side superfluous stimulus by the incoming Biden administration and the Fed under Jay Powell was essentially asleep at the wheel and only woke up much too late to the inflationary pressures that had been unleashed.

The idea that the inflation was just transitory did the rounds amongst eminent economists, turned out to be completely wrong. And here we are. The nightmare scenario is that you raise rates. You cause financial pressure. You slow the economy down. There's a recession.

But you don't get inflation down. That's what went wrong in the 1970s. Now, I think inflation is going to come down somewhat this year, but I don't believe that it's going to come down anywhere close to the Fed's two percent target.

[10:45:07]

And, Fareed, I think it's important to remember that not only is inflation not by any means under control, but this banking crisis isn't over. Notice it has already spread to Europe. Credit Suisse had to be taken over in a hasty shotgun marriage with UBS just last week. Other banks are under significant stress.

So, this is the central problem of central banking. In a situation like this, you've got to try and get inflation down but you might cause such a financial crisis that you overdo it, then you end up with a significant recession. But you're forced then into taking measures like expanding your balance sheet and not raising rates any further, which caused the inflation to persist.

The market doesn't believe Jay Powell when he and his colleagues say they're going to raise rates some more. That's not what the market thinks is going to happen. The market is expecting rates to be cut by the end of this year.

And so there's a big, I think a big tension between what the Fed is saying and what the market is expecting. This is a credibility problem, which is very, very fundamental.

ZAKARIA: Very simply, what should the Fed -- what should the federal government do broadly?

FERGUSON: What it doesn't want to have a generalist banking crisis. The problem is that if it wants to reassure all those uninsured depositors with large deposits at medium sized banks it needs Congress to give it a green light. Because under the new regulatory arrangements, post financial crisis it is not up to the Fed and the FDIC to make up a new rule that basically covers all bank deposits. So, it's not actually easy for the government to fix this problem.

The other difficulty I think the Fed has is that it really doesn't know how much more in the way of rate hiking it can risk before this banking crisis intensifies. I think this is not just a job for Jay Powell. It's also a job for Janet Yellen.

And last week, Janet Yellen really alarmed investors by seeming to suggest the decisions about uninsured deposits would be made on an ad hoc basis. So, it will kind of decide if your bank is going to be systemically important when there is a run on its deposits. That's just not consistent and credible position.

So, I think it's as much the treasury as the Fed that really needs to get its act together here, communicating clearly what it's going to do to avoid a banking crisis and to avoid, of course, a much more severe recession than most people were expecting. Just a few weeks ago when the talk was all of non landings or soft landings, these sorts of Goldilocks scenarios look less and less plausible because of mistakes that have been made by both the financial, fiscal and the monetary authorities.

ZAKARIA: Niall Ferguson, good to have you on.

FERGUSON: Thanks, Fareed.

ZAKARIA: Next on GPS, the International Criminal Court issued a warrant for Vladimir Putin's arrest last week. The alleged crime bore a resemblance to something that the Nazis did. I'll explain all that after the break.

(COMMERCIAL BREAK)

[10:52:25]

ZAKARIA: And now for the last look. Last week, the International Criminal Court issued an arrest warrant for Vladimir Putin. Surprisingly of all the possible charges, the unprovoked invasion of Ukraine, the murder and rape of civilians, the bombing of houses and infrastructure, the charge was about taking large numbers of Ukrainian children to Russia. It may surprise you that international law envisioned that kind of war crime. But as "Politico's" Jamie Dettmer noted, the allegations have echoes of a dark chapter of World War II.

The Nazis were, of course, obsessed with the racial superiority of ethnic Germans. That's what motivated Hitler's expansionism and the mass murder of the holocaust. At home, the Nazis also wanted to strengthen the German race. They fretted over population losses from the war. So, they hatched a plan to absorb Aryan looking children of conquered peoples.

Hitler's right hand man, Heinrich Himmler, laid out the sickening plot, "What other nations can offer in the way of good blood of our type, we will take, if necessary, by kidnapping their children and raising them here with us."

Historian Isabel Heinemann estimates that over the course of the war the Nazis took tens of thousands of children from Poland, the Soviet Union and elsewhere in Europe. The children were carefully selected for their Aryan features. The young ones could be immediately adopted by German families. Older children were first sent to reeducation facilities to be Germanized. After the war, countries demanded their children back. Some were sent back to families and societies they often barely remembered. Many stayed in Germany, content with their new lives or unaware of their true identities.

This child abduction program was a well known feature of Nazi atrocities. It was one of the major charges in the eighth Nuremberg trial. Today, thousands of Ukrainian children have allegedly been taken to Russia to be Russified in reeducation camps or absorbed into Russian families.

The Kremlin has been fairly open about this operation and has used it as propaganda because Russia claims to be doing something benevolent, helping children from occupied Ukraine integrate into Russian society and rescuing orphans from the war zone. Well, here is a dose of reality. Fifteen-year-old Arina Yatsiuk was made an orphan after Russian troops shot her parents to death and ushered her into a car. Her aunt has been trying to find her and believes she was taken to Russia.

[10:55:04]

Russia's programs for Ukrainian children are overseen by Maria Lvova- Belova, Russia's children's rights commissioner. She herself adopted a Ukrainian boy. She says children like him at first sing the Ukrainian national anthem, but quickly become patriotic Russians. All this helps bolster Putin's bogus claim that Ukraine is not a real country and Ukrainians' lack of true national identity.

Lvova-Belova too was charged by the ICC with war crimes, but Putin has publicly encouraged her efforts and passed a law to streamline those sorted adoptions. His clear and open involvement seems to be why, at least for now, prosecutors chose this crime to charge Vladimir Putin.

Many have noted the irony of Putin's claims to be de-Nazifying Ukraine when he is in fact following parts of Hitler's playbook. Though the chances are low that Putin ever stands trial the ICC's arrest warrant is a reminder of the moral depravity of Russia's behavior during this war.

Thanks to all of you for being part of my program this week. I will see you next week.

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