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Quest Means Business
Ben Bernanke's Press Conference
Aired June 22, 2011 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Slow, weak, depressed, and that is how the Fed describes some key parts of the U.S. economy. Ben Bernanke speaking moments from now.
The $112 billion question. Greece's cabinet approves the austerity plan. And advertising begins at home. Martha Stewart enters the global branding game. You'll hear it tonight.
I'm Richard Quest. I mean business.
Good evening.
It is slower than expected. Is weaker than anticipated. The Federal Reserve's latest diagnosis of the U.S. recovery is more pessimistic than we heard in April. And with the economy at a snail's pace even the Fed admits it has been taken by surprise. We are just waiting to hear the Chairman Ben Bernanke who will be holding one of his newly fanged press conferences in the next 15 minutes or so. And we will carry and bring that to you when it happens, or at least we will dip in and out of it.
Before we do, though, we have much to get to, to explain the decision of the Fed to leave interest rates as they are, at the historic lows. And also to talk about what they are doing on QE2. Let's start with the key phrases that we have heard from the Fed.
They say that the recovery is progressing. But they say it is at a moderate pace and more slowly than expected by the committee. They blame things like higher food prices, energy prices, even the Japanese earthquake. They say those factors are temporary and that even though the job market, which is weaker than anticipated, which would actually have moved the economy more slowly than expected.
Putting this into an extended period; the Fed has just cut the growth rate to 2.9 percent. I'm just being told, at the moment. The latest numbers coming from the Fed, being released, which will be discussed by Ben Bernanke. Now, not surprisingly then, with a reduction of the growth rate, which I now believe is just 2.9 percent. The interest rates they say will remain low for an extended period. So, all in all, QE2, the quantitative easing, the purchase of bonds will remain coming to a close at the end of June. There is no plans to replace it; $600 billion in bonds will have been bought and the cornerstone of what was a stimulus package. Some people have questioned whether the death of QE2 was actually going to pull the rug out from under the U.S. economy.
Let's put this into perspective. When the U.S. economy hit a really bad patch quantitative easing was introduced. And bonds were purchased that helped create a cushion and ensure that the U.S. economy did not falter much further.
As growth returned, there were worries that things were faltering again. So, QE2 came along and that also enabled, with $600 billion, to be maintained. Now the fear is that the Fed is rolling up any form of stimulus for the economy. And that could be a serious setback. Particularly if growth is more slowly than expected, then that of course, would have implications. But do not be fooled. The Fed has no such intentions. It is taking the bonds that it has purchased. And it is buying more bonds evermore. The end of QE2 is a major milestone on the road to recovery in the U.S.
Let's talk to Felicia Taylor and Maggie Lake, both joining us this evening.
Felicia, there is no doubt the fear of the market, as we have just seen, is that the end of QE2 is pulling the rug out from the economy. Is that how they are seeing it tonight?
FELICIA TAYLOR, CNN FINANCIAL CORRESPONDENT: Actually, not really, because QE2 was priced in. Everybody expected this to come to an end. The good news is that we didn't get any surprises from the Federal Reserve with regards to the minutes of the FOMC. The bad news is that we did hear talk, as you mentioned just now, that the economic recovery is slower and that growth forecasts are being scaled back. So you saw basically a range of trading going from a negative of down about 30 points, to now just fractionally higher. It is taking everything in stride right now.
The press conference, though, that is coming up in just a few minutes is where traders are really going to be looking for every little nuance. They want to see how he is going to read into everything. The tone of his voice, his body language, his inflection, for any clue about the direction the markets are still looking for. And that is something that is not out there yet. Growth is going to be less than we expected. That is good. He acknowledged it. The marketplace wanted to hear that.
QUEST: All right.
TAYLOR: He also acknowledged the completion-but he said, Bernanke said it is going to subside.
QUEST: Maggie Lake, they are looking at the numbers now, a growth of 2.7 to 2.9 percent, a reduction. That doesn't do the trick for an economy the size of the U.S. with an unemployment rate of 9.1 percent, Maggie.
MAGGIE LAKE, CNN FINANCIAL CORRESPONDENT: Depends what your starting point, and what the fear was, Richard. Remember, quantitative easing two, round two was put into place because the Fed was getting concerned that we were starting to spiral into deflation and they were looking at the possibility of a double-dip recession. So we are not there.
I mean, if you take a look at what they-you can give them credit for most economists, praise them for, give them credit it for. It was that. They did prevent deflation from taking hold, a sort of Japan-style situation. They kept interest rates low. They did rise somewhat. They didn't go down but they kept them low. That kept borrowing costs down. The liquidity out there, risk was back on to a certain extent. That moved into stocks, supported the corporate bond market, the stock market, helped confidence. And the economy is still growing. It is disappointing, Bernanke says that, but it is still growing.
QUEST: OK, but Felicia, how much can we say that all QE2 did was raise the value of the stock market and lower the value of the dollar? The one thing people said, the only people who gained, were those who were long in stocks.
TAYLOR: Well, to some extent that is true. I mean, the marketplace, since August is up in double digits. I mean, there is no question that it helped the value of the equity markets. And this is where the marketplace is going to be concentrating in the next few minutes, on what the Federal Reserve chairman has to say at this press conference. Are there going to be any hints of QE3? Not everybody discounts it. There is certainly many hawks on the Federal Reserve's president's board that don't agree with QE2, let alone the idea of QE3.
But if the marketplace does fall down-and there are, you know, phrases that I could use to be more descriptive. But if we see, for instance, maybe a 15 to 20 percent pull back, the marketplace is going to expect the Federal Reserve to jump in right away again and be accommodating with the possibility of QE3. So the idea is not completely off the table yet. And the markets, you know, it is going to be trade bound, in a trading range, for quite some time. The only blip that we might see next week is what they call window dressing. And that is the end of the quarter.
QUEST: All right.
TAYLOR: Where portfolio managers are going to start buying up stocks and making their portfolios look better. After that, you could see some concern.
QUEST: Maggie, Maggie, the cons of a QE3? We know that they are reinvesting the bonds, as I have just said. So to that extent there is no- there's no technical tightening taking place. But there is no support, either.
LAKE: Well, that is not exactly true. I mean, they are keeping interest rates rock bottom. And they have again vowed to do that for an extended period, Richard. So it is not like they are taking away all of the support. It is this extraordinary bond buying that they are slowing down. And you are right, and Felicia brought up that point. Not everyone on the Fed was happy that they did QE2 and at this point they are going to balance the risk and the cost doing anything more. And they are piling up. Take a look at the cons of even what they have done so far, and you can see that it very much weakens the dollar. And this has been a big sticking point globally, as you know, a lot of emerging market countries, really angry about that devaluation. They say all that liquidity flowing into commodities, pushing inflation up around the world. It also didn't create more jobs and it didn't really help housing, jobs and housing are the two problem spots of this economy. The Fed knew it wasn't going to do that. It wasn't going to be a silver bullet. So they are really going to have to go further. It would take a really extreme situation I think.
QUEST: Felicia, back to you. Look, I'm looking at a market. I'm looking at a Dow that is just up a couple of points. I accept what you say, that it is price in. But frankly when I heard the words, "weaker than expected, lower than anticipated." I mean all those phrases I thought we might have fallen out of bed here.
TAYLOR: Not at all and I'll tell you why and I spoke to some traders on the floor earlier. Their feeling is thank goodness finally, the Fed chief is admitting the fact that the economy really isn't doing that well. We have had so many economic numbers coming out late, whether it is the job market, manufacturing, housing, that really have been pretty darn poor. And they want to hear from the Federal Reserve that they are acknowledging that, yes, the economy is coming back. But it is much slower than people expected. There isn't the job growth.
QUEST: All right.
TAYLOR: The things that Maggie was talking about. And frankly that is what they need to hear is that acknowledgement, because they were not beginning to believe what the Federal Reserve chairman was saying. They thought he was in some kind of a bubble out there, not admitting-
QUEST: Hey, hey, hey!
TAYLOR: -how bad things really are still in the United States.
QUEST: Hey, don't mention bubbles. We're-we're not-let's not introduce bubbles at this particular point.
(LAUGHTER)
And I saw Maggie, just violently, shaking her head at my mere suggestion, which means that when you two are in agreement against me, it is time to say, Maggie Lake and Felicia Taylor, many thanks, indeed for joining us, from New York.
(LAUGHTER)
QUEST: Ah, that is where you are.
Now, as we move further on, it is a controversial question in the United States. Later in the show we'll hear one side of the argument from David Stockman, who was President Reagan's budget director, and no fan of QE2. He'll be with us in about 20 minutes from now. In just a few moments, in Washington, Ben Bernanke will be addressing the media. This is the picture-well, that is the picture of where he'll be. And we'll be there when he begins.
(DESK BELL CHIMES)
(COMMERCIAL BREAK)
QUEST: Now then, Ben Bernanke is speaking to the media conference just a short time from now. The chairman of the Fed will be giving us an idea, excuse me, of why the committee decided to end QE2 and not maybe refresh it or come up with some more. Especially, as it says in its statement from today's FOMC, that it believes that the Fed is-or the economy is in a weaker position and weaker than expected.
Investors in the U.S. are digesting what the policy report. Now when Bernanke speaks markets have moved and when you look at the S&P 500 over the past two years, you'll see exactly how it has reacted to what it he said. When QE1, or quantitative easing was first announced back in '09. That was the first range and there was a sharp range. And throughout that has continued. We shall pause, with this graph in mind, and listen to the chairman of the Fed.
(BEGIN LIVE FEED, IN PROGRESS)
BEN BERNANKE, CHAIRMAN, U.S. FEDERAL RESERVE: In my opening remarks today I will briefly review today's policy decision and I'll place the decision in the context of our economic projections and our policy strategy. I'll then be glad to take your questions.
Throughout today's briefing my goal will be to reflect the consensus of the committee while taking note of the diversity of views as is appropriate. Of course, my remarks and interpretations are my own responsibility.
As indicated in a policy statement released early this afternoon the committee decided today to keep the target range for the federal funds rate at zero to 0.25 percent. The committee continues to anticipate that economic conditions, including low rates of resource utilization and a subdued outlook for inflation in the medium run are likely to warrant exceptionally low levels for the federal funds rate for an extended period.
The committee's planned purchases of $600 billion of longer-term Treasury securities will be completed by the end of this month. And the committee will continue to reinvest principle payments from its securities holdings going forward. In conjunction with today's meeting, the FOMC participants submitted projections for economic growth, the unemployment rate and the inflation rate for the years 2011 to 2013, and over the longer run. These projections are conditional and each participant's individual assessment of the appropriate path of monetary policy needed to best promote the committee's objectives.
I'll focus on the information shown in the figures that have been distributed. In each figure, the dark area, the notes, the central tendencies of our current projections, while the lighter shaded area denotes the full range of projections. The longer-run projections show at the right of each figure represents participant's assessments of the rate to which each variable will converge over time under appropriate monetary policy and assuming no further shocks to the economy.
The longer-run projections for output growth have a central tendency of 2.5 to 2.8 percent. And the longer-run projections for the unemployment rate have a central tendency of 5.2 to 5.6 percent, the same as in our April projections. These projections may be interpreted as indicating participants current estimates of the economy's normal or trend rate of growth and its normal unemployment rate over the longer run, respectively. It should be noted that these estimates are inherently uncertain and subject to revision because longer run rates of economic growth and unemployment are determined largely by non-monetary factors that may evolve over time and that often cannot be directly measured.
The central tendency for of the longer run projections for inflation, that is measured by the price index for personal consumption expenditures, is 1.7 to 2.0 percent. Since the longer run inflation outlook is determined almost entirely by monetary policy these projections can be interpreted-
(END LIVE FEED, IN PROGRESS)
QUEST: So, Ben Bernanke is now going through-basically he is reading out the statement, that we expect him to do. And we are going to sort of pause there until he starts taking questions, when it might get to the more fruity and a little more exciting.
Maggie Lake is still with us, in New York.
Maggie, we obviously opted out of Mr. Bernanke, because listening to the central rate and the bandwidths and those sort of things can perhaps be-
(LAUGHTER)
QUEST: Even for those of us, like you and me, that are interested in this sort of thing, it can be on the dry side.
LAKE: Yes, that is right. When you said we are waiting for the more exciting stuff, it is all relevant, isn't it, Richard?
But listen, the one thing that when we get to the Q&A that we should pay attention to and we should expect, really, is that the reporters in the room are really going to try to press them on two issues. One, is this idea that some of the forces that are slowing the economy are temporary. He said it again. He did acknowledge that growth is slower, jobs are disappointing. But he is still saying it is temporary, even though they are bringing down their growth forecast. What does temporary mean? How long? And how severe is that impact going to be. And is it really just temporary? And then the other thing, of course, is, is the door open at all for more-any other kind of stimulus. Interestingly, Bill Gross, of PIMCO out Tweeting today, saying he thinks that Jackson Hole, they will introduce some sort of idea of something else. Not QE3, necessarily, or more buying but maybe some idea of capping interest rates. So, clearly he is the sort of sole, lone voice out there. But that is what we are going to be looking for.
QUEST: OK, as we look for that, I see the market is just basically-I was going to say it has given up the gains, but there were only two or three of them to start with.
LAKE: Right.
QUEST: We are just a little touch under that now.
Maggie, ordinary Americans, you live there, you-you live amongst them, as they might say. Ordinary Americans, will they take today's slower-than- expected, weaker-than-anticipated, it is confirming what they already know. Will they be disappointed the Fed is not doing more?
LAKE: I don't think so, Richard. I think that he is saying what they already know. They are confused about the idea that inflation isn't out there and is temporary, because when you talk to most people they are really feeling the pinch of prices. So on that respect they are going to be disappointed.
QUEST: Maggie, pause.
LAKE: I think most-
QUEST: Pause, Maggie. Let's go back to Ben Bernanke.
(BEGIN LIVE FEED, IN PROGRESS)
BERNANKE: -run unemployment projections. In short, we expect the unemployment rate to continue to decline for the pace of progress remains frustratingly slow. Inflation has moved up in recent months, mainly reflecting higher prices for some commodities and imported goods. In addition prices for motor vehicles have risen notably as a result of the recent supply chain disruptions.
However, as the affects of these factors dissipate, the committee anticipates that inflation will subside in coming quarters to levels at or below its mandate consistent rate, as shown in the figure entitled, PCE Inflation. Specifically the central tendency of participants inflation projections is 2.3 to 2.5 percent for this year, but declines to 1.5 to 2.0 percent in both 2012 and 2013. A trajectory that is broadly similar to that of our April projections.
The economic outlook provides important policy context. In particular the committee's policy strategies intended to foster both aspects of our dual mandate. That is promoting the economic recovery so that the unemployment rate returns over time to its longer term, normal level and ensuring that inflation, over time, is at levels consistent with our mandate. At 9.1 percent the current unemployment rate remains elevated and progress toward more normal levels of unemployment is likely to be slow, as I noted. Moreover the inflation rate, which picked up in recent months is expected to subside to levels at or below the rate of 2 percent, or a bit less that most participants judge to be most consistent with the dual mandate.
The ongoing labor market slack and the subdued inflation outlook are key reasons for the committee's decision to maintain the current high degree of monetary policy accommodation. And for our judgment at exceptionally low levels of the funds rate are likely to be warranted for an extended period.
Thank you. Be glad to take your questions.
QUEST: There we go, question time. Now they try and point out the holes in what he said and turn up the Bunsen burner under the Fed chairman. They'll be lucky.
QUESTION: Exceptionally low level for an extended period. Does that policy or that guidance also apply for the Fed securities holdings? In other words, will they be maintained at a very high level for an extended period?
BERNANKE: We haven't made any such commitment. It is true that when we begin to allow the portfolio to run off, rather than reinvesting, that would be a first-step in a process of exiting from our currently highly accommodative policies. But we have not yet chosen to make any particular commitment about the time frame. We'll be looking at the outlook and trying to assess when the appropriate time is to take that step.
QUESTION: (OFF MIC).
QUESTION: Sorry, if I may follow up? Why give guidance on once policy tool, but not give guidance on another policy tool, when the Fed has talked about those two policy tools working together?
BERNANKE: No, that is a good question. It is something we have on the table, something we thought about. But to this point we haven't take that step.
QUESTION: (OFF MIC).
QUEST: A technical question, that was, concerning the QE2 and the formula of the bonds. Now, the next question.
QUESTION: Attributes most of the revision forecasted to temporary factors. So, I was wondering if you could explain what seems to be persisting in terms of holding the recovery back. I did see the statement, it says, "in part, factors that are likely to be temporary". Are there more permanent factors that are producing a worse outlook than three months ago?
BERNANKE: Well, as you point out, what we say is that the temporary factors are, in part, the reason for the slow down. In other words, part of the slowdown is temporary and part of it may be longer lasting. We do believe that growth is going to pick up, going into 2012, but at a somewhat slower pace from than we had anticipated in April. We don't have a precise read on why, uh, this, uh, slower pace of growth is persisting. One way to think about it is that maybe some of the headwinds that have been concerning us, like, uh, you know, weakness in the financial sector, problems in the housing sector, balance sheets and deleveraging issues, some of these headwinds maybe stronger and more persistent than we thought.
And I think it is inappropriate balance to attribute the slowdown partly to these identifiable temporary factors, but to acknowledge the possibility that some of the slowdown is due to factors which are longer lived and which will be still operative by next year. You note that in 2013, we have growth at about the same rate that we anticipated in April.
QUESTION: Mr. Chairman, could you describe to what extent the situation in Greece and Europe was discussed at the meeting? And what policy conclusions were reached? And also could you tell us whether or not in response to the recent slowdown, there was a discussion about further easing?
BERNANKE: Well, with respect to Greece, that is obviously, very important that-it is a very difficult situation. We have been in close communication with our colleagues in Europe. Obviously not part of the negotiations but we have been kept well informed. We had a G7 call over the weekend, for example. I think the Europeans appreciate the incredible importance of resolving the Greek situation. If there were a failure to resolve that situation it would pose threats to the European financial system, to the global financial system, and to European political unity, I would conjecture as well.
So, yes we did discuss it. It is one of several potential financial risks that we are facing now. But again, we are mostly just following the situation closely and making sure as best we can that our own institutions are well positioned relative to sovereign debt in the so-called peripheral countries. With respect to additional asset purchases, we haven't taken any action, obviously, today. We'll be reviewing the outlook going forward. It will be a committee decision.
I think the point I would make, though, in terms of where we are today, versus were we were say, in August of last year, when I began to talk about asset purchases, is that at that time inflation was very low and falling. Many objective indicators suggested that deflation was a non- trivial risk. And I think that the securities purchases have been very successful in eliminating deflation risk. I don't think people appreciate, necessarily, that deflation can be a very pernicious situation, where it could have very long lasting effects on economic growth.
In addition, growth in payrolls has actually picked up. In the four months before the Jackson Hole speech in August there was about an 80,000 per month payroll increase.
(END LIVE FEED, IN PROGRESS)
QUEST: So, there we have some more guidance from Ben Bernanke on why there are no more asset purchases, no more quantitative easing. He says it is because back in the middle of last year, when they announced QE2, deflation was the big risk.
And Maggie Lake, who may still be with me, very briefly Maggie.
Europe, isn't that fascinating? He admits failure in Greece would pose threat to the European financial system, the international security of the financial system. And they are following events closely. But an admission that they are de facto observers.
LAKE: That's right. And he is going to be careful about trying to keep it that way, Richard. Also for the rest of this, watch him to try to turn it away from the Fed, say they have done what they can. The burden is now on politicians in the U.S. to do something. That is a theme he is probably going to try and hit on and try to steer, in the coming weeks.
QUEST: Maggie Lake is in New York. I'm Richard Quest in London.
Maggie, many thanks.
We are both in a relatively new, uncharted territory, because-well, it is only the second time the Fed chairman has had a press conference after an FOMC decision.
When we come back, the decision to take QE2, one person believes that it was a-not necessarily the wisest course of action. The former budget chief after the break.
(COMMERCIAL BREAK)
QUEST: Hello. I'm Richard Quest, QUEST MEANS BUSINESS.
This is CNN.
Tonight's big story for us, Ben Bernanke has been discussing the Federal Reserve's latest report on the U.S. recovery. It says the U.S. economy is growing slower than expected, thanks to high energy and food prices. It's the second time that the Fed chairman has briefed the media on the FOMC Bank's report and what it means for the economy.
(BEGIN VIDEO CLIP)
BEN BERNANKE, FEDERAL RESERVE CHAIRMAN: As indicated in that policy statement released early this afternoon, the committee decided today to keep the target range for the federal funds rate at 0 to .25 percent. The committee continues to anticipate that economic conditions, including low rates of resource utilization and a subdued outlook for inflation in the medium run are likely to warrant exceptionally low levels to the federal funds rate for an extended period.
The committee's planned purchases of $600 billion of longer-term Treasury securities will be completed by the end of this month. And the committee will continue to reinvest principal payments from its securities holding going forward.
(END VIDEO CLIP)
QUEST: The Fed has called time on QE2, which was the $600 billion stimulus program that ends next week. Plenty of economists will be happy to see it go.
David Stockman was the director of the Office of Management & Budget, the OMB, under President Reagan and believes QE2 will go down in history as a terrible mistake.
Mr. Stockman, Ben Bernanke said that QE2 came along because the risk was one of deflation, which, as he described as pernicious. That's new gone. QE2 can go, too.
Do you agree?
DAVID STOCKMAN, FORMER DIRECTOR, OMB: Yes. I agree. I think -- I think QE2 was a big mistake in the very beginning. There never was a serious flood -- threat of deflation, in my judgment. You can't see it anywhere in the numbers unless you want to measure inflation by not counting energy or food or anything else that's going up.
But more importantly, the -- pro -- the meltdown in 2008 and the huge recession after that was a function of too much debt, 30 years worth of debt buildup on the private and public economy. It's going to take a long time to deflate that excess debt, work out from under it...
QUEST: Right.
STOCKMAN: And there is no way that low interest rates will help solve that problem. So I think the Fed has been on the wrong course from the very beginning and the only thing it's done is showered Wall Street...
QUEST: OK.
STOCKMAN: -- with zero costs, overnight money and started the whole speculation, gambling casino once again.
QUEST: Upset -- when the Fed says today that the -- the economy is slower than expected, weaker than anticipated, depressed housing market, Mr. Stockman, how much worse would it have been if there hadn't been QE and its sister, QE2?
STOCKMAN: I don't think QE2 had any impact bon Main Street. Main Street is struggling today because households have way too much debt and are not going to go out and borrow in order to add to their consumption. And they shouldn't.
The American economy over consumed, over borrowed for decades. And as a result of that, the economy is weak because it is structurally impaired from all of this debt.
And what the Fed should so it get out of the way, stand back and let the private economy work itself out...
QUEST: OK, the...
STOCKMAN: -- from under this massive debt.
QUEST: But that will take time and the Fed has its dual mandate, which you know only too well. So surely, there is an obligation not just to sit on their hands and do nothing.
STOCKMAN: I think they have an obligation you need the dual mandate to have, one, a sound currency that doesn't inflate. And, secondly, to do no harm to the economy. I think the Fed can do nothing about unemployment right now. The Fed can do nothing about the growth rate.
QUEST: All right...
STOCKMAN: The only thing that happens when it injects more reserves into the banking system is that it just fuels more speculation on Wall Street. This money doesn't make its way into the real economy. This money makes its way into driving up energy prices and...
QUEST: All right...
STOCKMAN: -- and cotton prices and food prices and the price of speculative assets.
So we are in a totally different chapter of our economic history and the formulas that the Fed is using, the policy rationale is obsolete, counterproductive and should be put on hold.
QUEST: Mr. Stockman, we loved having you on the program.
I'm sorry it's got to be slightly on the brief side. A busy day with Ben Bernanke.
But David Stockman, always welcome to hear his views on QUEST MEANS BUSINESS.
Tonight, there is a step forward for Greece. Let me remind you what Bernanke said about Greece. "Greece is a potential threat to global financial systems," said the chairman of the Fed. He would have welcomed the Greek cabinet, which has approved a package of deeper spending cuts Athens needs to push through the painful reforms to get the bailout money.
Anger is mounting in the capital.
CNN's Diana Magnay, who you can see there, is in the Greek capital and will be with us in a moment.
First, though, John Defterios and the austerity plan.
JOHN DEFTERIOS, HOST, "MARKETPLACE MIDDLE EAST": Yes, the austerity plan is going through. And it's interesting to note that Ben Bernanke and the Fed is watching very closely, Richard.
Greek Prime Minister George Papandreou can catch his breath after the parliamentary vote yesterday and a green light from the cabinet tonight. But not for long. The next leg of this Greek marathon, if I can put it that way, may be the toughest.
Here's what's on the table in terms of cuts -- $112 billion between now and 2015. That's a big sum for a $300 billion economy. It works out to an extra 8 percent of GDP each year.
This round of austerity will lean heavily on the public sector. Take a look at this, 150,000 jobs to go of 700,000 public sector workers.
So one hire per every 10 retirees. So 10 people who leave the economy, only one can be hired in the future. And the public sector wages will be sliced by 20 percent.
There's a great deal of work to do between now and then. Two hundred and fifty thousand private sector jobs had already been lost and unemployment has shot up to 16 percent -- 5 percentage points in the last 16 months alone.
The new finance minister, Evangelos Venizelos, coming from the left of the ruling party, will meet resistance to the cuts.
Here's the spokesman from a union affiliated with the Communist Party, which still has 9 percent of the seats in parliament.
(BEGIN VIDEO CLIP)
NIKOS THEODORAKIS, PAME GREECE: We must act for all workers, both in the public and private sector. Those natives (ph) target, we shall make public industries such as (INAUDIBLE)
And education to the private sector.
(END VIDEO CLIP)
DEFTERIOS: Well, the tax man, will be a factor, as well. The value- added tax, which has risen to 23 percent already, from 13 percent, will now have a broader swath. It will include food sold in restaurants and cafes for the agora cafe culture in Greece. There will be an additional 3 percent income tax on government workers. That's going to hit quite hard.
And then here's this emergency tax -- property, yachts and pool taxes. It sounds a bit strange, of course, but when you're desperate to raise money, you reach into the private sector and the public sector, as well.
QUEST: Right.
DEFTERIOS: So the big question, of course, does this clear the parliament next week?
QUEST: No. That's not the big question, John.
(LAUGHTER)
QUEST: The big question -- it will clear the parliament next week.
DEFTERIOS: Well, you're confident. Look, that's good.
QUEST: No, the big question is, will any of this actually be introduced and followed through?
We'll talk more about that...
DEFTERIOS: OK, very good.
QUEST: -- in the days ahead.
DEFTERIOS: Yes, that's -- that's the challenge.
QUEST: Thank you, John.
DEFTERIOS: Can they implement what they suggested?
Also, the privatization program, they're looking to raise $70 billion...
QUEST: All right...
DEFTERIOS: -- that's a tough game.
QUEST: Whoa. Whoa.
John Defterios.
Diana Magnay is in Athens tonight.
I think I've put me neck on the block by saying the austerity measures will go through. But this, there is a new a consensus -- don't look so alarmed there, Ms. Magnay.
This, there is a consensus, isn't there, starting to build?
Or is -- it as downright controversial as ever?
DIANA MAGNAY, CNN CORRESPONDENT: Well, if you look at the fact that yesterday, in the confidence vote, George Papandreou got 155. So all of his deputies behind him. And that is a good indication. Only 143 opposing the new government.
So that -- that is a positive sign, I suppose. So that will be all right -- Richard, when that vote does go to parliament, and today, the dropped (INAUDIBLE) by the cabinet. If -- if we're optimistic about it, if the same thing happens that had happened last night in the parliament, then that austerity program should go through, much to the disgust of the people, really, down on the street behind me -- Richard.
QUEST: And even -- I mean the failure of the first plan last year was the implementation never happened.
So why does anybody believe that tax revenues will be raised, that swimming pools will be properly accounted for and that privatized assets will take place?
MAGNAY: I don't think it's fair to say that none of it ever happened. The minister of finance has described this as the biggest fiscal consolidation that happened in the eurozone over the past year, which is probably (INAUDIBLE) because it was the one that needed the most fiscal consolidation.
So there has been some sort of progress in achieving fiscal reductions and reducing the -- the government budget. In making progress on tax evasion, they have walked through various reforms there.
One measure that they didn't start on at all, though, was this privatization program. They literally didn't even start building a framework on it. And that is why so many people you speak to here, so many analysts are worried that rushing it through now won't serve Greece's best purposes, that those assets...
QUEST: All right...
MAGNAY: -- will be sold off dirt cheap and that in the long run, the government will be doing itself a disservice by rushing through the privatization program without the requisite legal framework to do it properly, and also, without, really, the sort of political will to do it properly, because, you know, it's -- it's really against everything that a socialist government stands for -- Richard.
QUEST: Diana Magnay, who is in Athens tonight.
Good to have you with us, Diana.
Keep watching events over the next day or two.
I'll be back, QUEST MEANS BUSINESS, after the break.
(COMMERCIAL BREAK)
QUEST: Dozens of people died from this year's E. coli outbreak in Europe. It could have been worse if not for the very latest medical technology.
The Personal Genome Machine was able to decode that special strain of E. coli in three days instead of two weeks. And it was all done at the fraction of a cost.
Jonathan Rothberg is the inventor of the machine.
And he now shares with us the personal motivation behind how he broke the mold.
(BEGIN VIDEO CLIP)
JONATHAN ROTHBERG, FOUNDER AND CEO, ION TORRENT:
I'm Jonathan Rothberg and I invented Jonathan Rothberg. Jonathan Rothberg is a fast method to read DNA. The first map of the genome was done for $3 billion and it was 50 or more people coming collectively together and we decoded what was common.
My vision was of something called personal medicine, where you would sequence an individual's genome and that individual, right at birth, and we would be able to help that person through their whole life.
I was motivated to sequence my son when he went to the newborn intensive care unit. So that was breaking the mold because everybody said it's impossible. So I needed a fast way to decode his genome as a code of life for my son, so I'd understand why he was in the emergency room and how best to -- to treat his condition.
And I treated my first high throughput sequencing company. And we were able to unravel a lot of mysteries that were based on DNA.
I was talking to my son, how my machine had been used to do the first personal genome.
And he said, dad, you know, why don't you make a new reader?
NOAH ROTHBERG, SON: And I was telling him, wouldn't it be better if you could tell what he was thinking?
Or if you could like read his mind in some way?
J. ROTHBERG: And I had this moment when he said that, I said, my God, why don't I make a machine that reads chemistry?
And I said, hey, my cell phone has a little chip in it.
Why do I make a chip that sees chemistry?
And we were able to put the entire sequencing machine on a disposable chip. And instead of taking weeks to get your results, you literally can take a specimen, whether it's human or bacteria, put it on the chip, put it in the machine and two hours later, you have your result.
This is a new age. People don't argue with you if you say sequencing will be as big as medical imaging. It will be a $100 billion business. But the most important thing, it will save money. Right now, I'm sequencing on working with Life Technologies. I feel very confident that the next decade, this decade, will see us unraveling the genetic code of cancer and making do you understand that turn it into a chronic disease.
Leila, come back.
The highest level of personal, my daughter was diagnosed with a genetic disorder, tubular sclerosis. She was six months old and a physician told me she may never speak. God forbid someone we love has cancer. I want them to be able to use diagnostics that came from Personal Genome Machine sequencing. So every day, I'm driven to make the world safer and better for the ones I love.
(END VIDEO CLIP)
QUEST: Now, while we've been on air, Ben Bernanke has been continuing to speak. He's obviously been pushed somewhat on interest rates. And he's basically said it's two or three meetings away from any rise in rates.
So, we're starting to get a clarification then on what extended period means. But I suspect his two or three meetings a week -- away -- it could be four or five. It could be a lot more than that.
Back after the break.
(COMMERCIAL BREAK)
QUEST: Imagine making a company so famous, the entire planet knows what your business is about in just one word, in one syllable -- Google, Apple, Nestle. They're just a few.
Now, America's divan of domesticity wants to be a member of this very lucrative club.
From the vantage point at the Cannes Festival of creativity, my colleague, Max Foster, looks at how Martha Stewart and others are playing the global branding game.
(BEGIN VIDEOTAPE)
ERIC SCHMIDT, EXECUTIVE CHAIRMAN, GOOGLE: If you're a person who has grown up in a rural village, you've not had access to textbooks and so forth and a Smartphone shows up with all the world's information available at your fingertips, literally, this is life-changing. And all of a sudden, every question you couldn't ask -- you couldn't ask before can be asked. All of the world's knowledge is available to you if you're curious. You can go in any direction you want.
MAX FOSTER, CNN ANCHOR (voice-over): Google is one of only a handful of truly global brands. Here are a few others that you'll probably recognize wherever you are.
UNIDENTIFIED FEMALE: You buy it because of the experience -- the cookie runway, the search wheel, that you have...
FOSTER: Hoping to join this elite club of truly global brands is Martha Stewart, the American homemaking icon who has her name on all sorts of home wear products.
MARTHA STEWART, ENTREPRENEUR: I'm here in Cannes because I've just come around the world visiting Asia, visiting the Middle East, trying to determine what our positioning will be in those countries.
FOSTER: But what is the...
STEWART: We have our...
FOSTER: How are you going to change your brand, because you -- aren't -- you're seen as a -- an American icon.
STEWART: Oh, yes, but -- but...
FOSTER: You need to be local, right?
STEWART: No, you don't have to be local. The world is much flatter than it was 10 years ago. The demand for a Western product is vast. When we were in Korea, our product -- our product is very, very useful in Korea. It's very useful in the new, emerging communities in China. It's very great for the apartments, the great condo apartments that are being built in Kuala Lumpur and in Dubai, those women, the women in Dubai are pretty much, a lot of them are stay at home. They want to beautify their homes. They want to understand. They want to cook. They -- well, they bake.
So they're -- they're buying my baking books. They're buying my baking products.
FOSTER: Well, that's interesting, isn't it, because you're an example of -- you're selling the same product in the same way globally.
STEWART: Yes.
FOSTER: Whereas companies are panicking, thinking that they need to sell in a local way.
STEWART: Well, local, for us, is a bed size is different. So the measurements may have to be altered. But -- and the electrical codes might be different.
FOSTER: But the brand is the same?
STEWART: The brand is the same and the look of the product can remain virtually the same.
FOSTER: But can you sell one brand in every country in just the same way or do you tweak it to suit local tastes, an age old marketing question?
The biggest advertiser in the world is Procter & Gamble, with a marketing spend of more than $8 billion a year. P&G's biggest brand is Pampers, going out to more than 100 countries.
MARC PRITCHARD, P&G GLOBAL MARKETING & BRAND BUILDING OFFICER: We -- we have a saying when it comes to how we sell globally, and that is, we want to be as common as possible but as different as needed. So a brand like Pampers, which is a great brand for us, this is a $9 billion brand. It touches billions of moms and babies and toddlers and dads worldwide. And it has a common purpose, a common benefit, a common insight and a common idea.
So its purpose is to care for the baby's happy, healthy development. The benefit is dryness, fit and comfort. And the reason why that works is because when babies are dry and they have a fit and comfortable diaper, they get to sleep, play and explore better, which helps them develop better.
The insight is this.
And you have a baby?
FOSTER: Yes.
PRITCHARD: Right. OK, you know -- has your baby ever gotten up in the middle of the night?
FOSTER: Regularly.
PRITCHARD: Regularly, because they get wet.
FOSTER: Yes.
PRITCHARD: So the insight is, is that when a baby sleeps through the night, the day is better. The day is better. We actually know they actually develop better. They play better. They eat better. And mom and dad are a lot better.
FOSTER: So that's a global message.
PRITCHARD: A global message, global insight.
FOSTER: But you don't sell Pampers in the same way in every country, do you?
PRITCHARD: Well...
FOSTER: The brand is slightly different.
PRITCHARD: What you can have is the same idea. So a night of sleep is a night of golden sleep. But you can execute it slightly differently.
FOSTER: Two -- does an Indian consumer or a Chinese consumer, are they happy to buy into a Western brand in the sense that, you know, it's a tried and tested product, or do they want their own?
PRITCHARD: Well, you know, every one of our brands, you have to make it feel like it's Indian or Chinese. So even though it may be a global brand, you have to make sure you're local. The companies and the brands that try to be centric in one place, like the U.S., and try to push it out, they're not going to make it.
Get local and once you get local, you can come up with an idea. And then you can be able to take it global.
(END VIDEO TAPE)
QUEST: That is a fascinating prospect.
And with Martha Stewart, as well, the Cannes Lions Festival.
Tonight's Profitable Moment is after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's Profitable Moment.
Ben Bernanke is still speaking in Washington at the end of an FOMC meeting. When we got the news release and the statement a few hours ago, right from the very first paragraph, you could tell it was going to be a difficult report to read.
The words jumped out to you -- "slower than expected, weaker than anticipated. The pace of growth may still be moderate, but it's slow, too slow.
The situation is like the curate's egg. It only takes one rotten part to give the whole thing a nasty, sour smell.
For the United States, it's the jobs problem that is the issue. The Fed says the indicators look weak given the recent job creation numbers, that's being polite. When QE2 rolls back into port next week, the Fed will try to make sure the economy doesn't tighten up. QE3 will likely not be the answer to the problem.
The only real issue is the problem. It's unclear what will solve the problem.
And that is QUEST MEANS BUSINESS for tonight.
I'm Richard Quest in London.
Whatever you're up to in the hours ahead, I do hope it's profitable.
"PIERS" is after your news headlines.
END
