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Quest Means Business
Angry North Korean Editorial Blasts U.S. Over Sanctions; EU Suspends Polish Law Lowering Retirement Age of Judges; Manchester United Face PSG in Last 16 of Champions League; Protests Against Hungary's Government Turn Violent; Brexit Debate Resumes January 7th; Paul Krugman Teaches Economics in New Master Class; Dow Drops 500 Points in Final Hour of Trade; Google to Invest $1 Billion to Double Workforce in New York; Elon Musk Prepares to Launch New Tunnel Technology; Google Launches New Shopping Service in India; Alan Greenspan: Bull Market is Folding. Aired 3-4p ET
Aired December 17, 2018 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, ANCHOR, QUEST MEANS BUSINESS: We are entering the last hour of trading on Wall Street and it is a pretty unpleasant situation. Early
losses, an improvement, and then a very sharp loss right through the afternoon, we're virtually at the worst point of the session with a loss of
nearly 2%. It's no different if we look at the broader market and the tech which is now down 2% and the RUSSELL 2000 which is the broadest market of
all that is now a bear market. We need to understand why. What's been happening? Well, today this is what's been moving the markets.
New sign of a slowdown pulls the market ever lower. I'll be joined in a moment by the Nobel winning economist, Paul Krugman. Goldman Sachs is the
Dow's worst performer of the year. Now, it's facing criminal charges in Malaysia. And Theresa May is threatened with a new confidence vote. We're
live in the world's financial capital, New York City on Monday, December 17th. I'm Richard Quest. I mean business.
Good evening. Once again the stock market selling has accelerated in the last couple of hours. Continued fears of a slowdown in 2019 are weighing
heavily on the markets on the eve of the Fed's policy meeting. In a moment, I will be speaking to Paul Krugman about that.
The Dow is also being pulled lower by its worst performing stock of the year, of its second heavily weighted and that is Goldman Sachs. Now join
me at the trading post and you'll see exactly the sort of sorry situation.
There's no doubt it's a red in today's post because we have all three markets that are lower. The Dow, S&P, and the NASDAQ, so we call that as a
red, most definitely not a green and no sign obviously of any records, and not even near sign of any records.
A midsession recovery gave way to thig late session route. And of course at this time of the day, the last hour, while it's always extremely dodgy
because you will suddenly see - you can suddenly see, it's not a definite, selling accelerate.
And it's the last full trading week of the year, so U.S. stocks have now given up all the gains for the year so far and now, everyone is watching
the Feds. Some suspect, it could still raise interest rates on Wednesday. And in case there was any doubt about Donald Trump's views on all of this,
the President tweeted, "It is incredible with a very strong dollar and virtually no inflation, the outside world blowing up around us. Paris is
burning and China way down. The Fed is even considering yet another interest rate hike. Take the victory."
Paul Krugman in the C-suite, good to see you, sir.
PAUL KRUGMAN, NOBEL PRIZE WINNING ECONOMIST: Good to see you.
QUEST: Well, what did you make - I mean, should the Fed listen to the President and not raise rates?
KRUGMAN: Okay, I'm in the peculiar position of thinking that the Fed should not raise rates, but it should not listen to the President, which is
hard position.
QUEST: No, not only that. We will allow you --
KRUGMAN: No, it's a hard position because I think he's put the Fed in a difficult position because there's a pretty good case for not raising rates
now. But to not raise rates in this beating would look like they were allowing themselves to be bullied.
So he actually - that was an extremely counterproductive tweet. There's a lot of arguments to say that the Fed really, on a pause for quite a while
here, but it's very important for them not to be seen, to be politicized so he may have put them in a very awkward position.
QUEST: When we look at what - I mean, today is just another day of volatility in the market. But there comes a point when this level of
losses does become a self-fulfilling prophecy towards a slowdown and a recession.
KRUGMAN: Well, always - what you have to remember; first of all, the stock market is a pretty poor predictor. The old gold stock is the line, the
stock market predicted nine of the last five recessions. And it's also - although the stock market is a source of wealth and if it goes down that
hits people, but it's not nearly as important as say fluctuations in housing prices.
Stock are held even now, by - most are held by real estate - a small number of people, but not all that liquidity because we're not all that sensitive
to prices.
So the stock market in itself is not that big a deal. There is this - I'll try make sense - there is this pessimism that you're now seeing in the
business world all of a sudden, and I don't know whether that CEOs know something or it's just, they're blowing off steam, but something is
happening.
QUEST: Right, and we saw that with the CFO survey, we saw it this week with the CEO survey. And I'm wondering whether they are merely reacting to
lower asset prices because they are the ones who feel obviously the fullest effect.
[15:05:07]
QUEST: And they've got this trade issue, the trade problem.
KRUGMAN: Yes, now, the trade thing, I mean, I've been pooh-pooing all of this a little bit. Moderate pooh-pooing because the biggest trade issues
are - NAFTA has essentially been saved. It's been slightly relabeled but it's been saved. There's not going to be a trade war within the E.U.
except for Brexit which is whole other thing.
The rest of the world does not - it's really U.S.-China is the flash point right now and that's not that big a deal from the world point of view.
QUEST: To those who say that - and I've read your articles, your columns, but to those who say, well, actually the President is doing a half decent
job when it comes to his trade negotiations, NAFTA, or actually, it came out of TPP, but he's got NAFTA and China is slowing down and he's got it
where they want him.
KRUGMAN: Well, the thing is, on NAFTA, I mean, he has essentially just repackaged an existing agreements with a few changes that actually make it
a little bit worse. But on China, the trouble is, what does he want from China? It's not clear -there are some real issues with China, but those
aren't being addressed -- intellectual property, technology transfer -- and the bilateral trade balance is actually getting worse.
So I'm not sure what's going on with China, but it doesn't look like a - I mean, it's creating a lot of turmoil and a lot of uncertainty for no clear
objective there.
QUEST: The global economy is slowing down, you would agree on that.
KRUGMAN: Yes.
QUEST: The U.S. has the fastest engine of growth, slowing it down further or at least not being the engine pulling it along. How serious is that?
KRUGMAN: So far --
QUEST: So far.
KRUGMAN: So far, there's nothing I see that looks like a recession. Now, it might give me some pause, but all of these executives have ears closer
to the ground than I do are suddenly warning about recession. But at least, I can't see it in any of the available data, but if there is a - the
thing that always worries me is we don't have any shock absorbers.
The U.S., in the average recession, we cut the Fed funds rate by 500 basis points. The Fed only has 225 to cut right now. Europe has none, less than
none to cut because ECB rates are below zero. So if something does go wrong, what do we do?
QUEST: But that was exactly the warnings that people like you said as the rates came down that in the future, there wouldn't be any maneuvering room.
KRUGMAN: Right. Exactly.
QUEST: So what do you do?
KRUGMAN: Well, I wanted the Fed to raise its inflation target, get people some expectation, let it rip, but they didn't. Now so the alternative, I
mean, if we do have a global recession, even a mild one, monetary policy is not going to be there for us. So we could have intelligent fiscal policy
and that's where you look and say who are these people who are going to make intelligent -- Steve Mnuchin, Larry Kudlow? So this is where you
start to get worried about the situation.
QUEST: Are you worried about the situation at all? I mean, and let me preface what I was saying, we are obviously not looking at 2008 or 2009
because the banking system is at least more robust, one would hope.
KRUGMAN: Yes, I think we might be looking at 1990. I've using that as a precedent. There was no one big thing. We had a recession in 1991. There
was no one big thing. It was a smorgasbord recession that we've seen. There was commercial real estate, there was the savings and loans, there
were a bunch of things, none of which in itself was all that big, but they came together and even then, our ability to respond was limited and it's
much more limited now.
QUEST: If we are looking at economic difficult times, you're master class, I mean it's a perfect opportunity because you're going to be giving these
master classes which people can subscribe to.
KRUGMAN: That's right, I have done it.
QUEST: Yes, yes. What theme?
KRUGMAN: Well, I suppose it's about economics.
QUEST: You have a lot of economics and ...
KRUGMAN: This was a chance for me to - I didn't think of it as being about current events, though they come up. But this was non-economics for - to
study for college but economics - what you and the intelligent and interested citizen wants to know.
And this is where I started, a little bit of conveying my love for the subject. Because actually, no one will believe it, but economics is a
beautiful thing.
QUEST: And the response?
KRUGMAN: It's very hard to know. I actually - I mean, I hear people who, you know, are talking about it, but I have no metrics. I don't know how
many people are watching.
QUEST: The whole art or science of economics, whichever way you which to view it on any given day, the general population learned more about
economics than perhaps they'd ever wish to following the financial crisis. And suddenly those of us, even like myself who weren't us - had to dredge
up quantitative easing and the like and the economic experiments that took place.
[15:10:06]
KRUGMAN: That's right. We performed - I mean, we used to say, we don't have a lot of evidence on fiscal policy because you basically only get
fiscal policy during - you know, discretionary fiscal policy during wars which are very bad laboratory for ordinary times.
But then we get this austerity mania, so we got to see what major fiscal contractions actually do in an environment where monetary policy doesn't
have traction and actually the models work pretty well. We've learned a lot. If there's any saving grace from this nightmare we went through after
2008, it is that we learned a lot about how the economy works.
We've got a lot of confirmation. A lot of things that people like me were saying have - did in fact come true. And this provides a basis for policy
makers to make much better policy, which they will ignore.
QUEST: You're certain? You're pretty sure about that?
KRUGMAN: Yes. I mean, there were two great lessons I thought from the whole crisis. Macro works pretty well, policy makers don't.
QUEST: We will talk more about policy makers but on the political side in just a moment if you'll be kind enough to stay.
KRUGMAN: Okay, sure.
QUEST: Thank you. We'll hear more from Paul Krugman later in the hour including on Brexit, the future of the British Prime Minister is in
question once again and the opposition Labour Party tries to drive a nail into her administration and her Brexit deal. It's a vote of confidence not
in the government, it's in her. In a moment.
The British Prime Minister Theresa May faces a motion of no confidence which was triggered by the leader of the opposition. Just days after
winning a confidence vote from her own Party, now the Labour Party leader, the opposition leader, Jeremy Corbyn says it's unacceptable. The
Parliament's vote over her Brexit withdrawal plan has been delayed until mid-January.
(BEGIN VIDEO CLIP)
JEREMY CORBYN, BRITISH LABOUR PARTY LEADER: I'm about to table a motion which says the following. That this House has no confidence in the Prime
Minister due to her failure to allow the House of Commons to have a meaningful vote straightaway on the withdrawal agreement and framework for
future relationships between the U.K. and European Union and that will be tabled immediately, Mr. Speaker. Thank you.
(END VIDEO CLIP)
QUEST: Bianca Nobilo is in London, Bianca, I'll save you the breath of saying that this is largely symbolic since it's in the Prime Minister, not
the government. But it does allow me to ask you why hasn't he gone for a vote of confidence in the government instead?
[15:15:04]
BIANCA NOBILO, CORRESPONDENT, CNN: Because the Labour Party, well, the front bench at least have set out their strategy which is to try and force
a general election. Now, that is what could result if they called a vote of no confidence in the government and then the government lost that that
could then precipitate the general election.
But if that fails, the Labour Party have committed themselves to exploring the second referendum option. So Corbyn needs to be careful now because if
he does go whole hog with a no confidence vote and that doesn't succeed, then he has essentially pledged his Party towards supporting the second
referendum.
But what is interesting is politically, this seems to have benefitted the Prime Minister at least in the short term because the euro skeptics that
really opposed her last week, the ones within the Conservative Party that called for that vote of no confidence have come out and said we're
supporting the Prime Minister, so essentially they are saying we are allowed to call a no confidence vote, but not you.
QUEST: Hang on - I was just about - surely, those members of her own party risk being hypocrites, well, no, not risk, they are hypocrites if they
voted against her last week in a confidence motion for leadership, but for her as Prime Minister.
NOBILO: I think many people certainly in the Labour Party would say that that would be true, but they have nevertheless come out, figures like Jacob
Rees-Mogg, very influential Brexiteers in the European Research Group and said that they will support the Prime Minister. Some of them have changed
their tune since Theresa May won that confidence vote last week saying if she can command the confidence at the Party, then she has our confidence
now, too, that's their line.
QUEST: Right, now, if there was a vote on her deal now, she'd lose, so what makes anybody think it will get better between now and mid-January?
NOBILO: Theresa May maintains she's still seeking assurances from the E.U. over the backstop, but Richard, as we discussed earlier, there's no reason
to think that she'll be able to get enough in order to convince people to support her deal and the numbers that she needs. There is some strategy to
running down the clock and presenting this binary choice between a no deal and her deal.
But then, Parliament have said that they won't allow a no deal to happen. So this is Brexit for you, Richard. It's just rumbling on. Everybody is
confused, nobody knows what's next. But one thing I think is clear, is Brexit doesn't seem as much a forgone conclusion, this is what MPs tell me
as it once did, let's say three or six months ago.
QUEST: Bianca, thank you. The chances of a hard Brexit that Bianca was talking about need to escalate before there is a chance of a smooth exit
from the European Union. In other words, things have to get much worse, the pain get greater before there's any likelihood of a solution.
I spoke with Ian Bremmer, the President of the risk consultancy Eurasia Group. The time running out for an agreement, I asked him if Theresa May
will have it done and dusted by the March deadline.
(BEGIN VIDEO TAPE)
IAN BREMMER, PRESIDENT, EURASIA GROUP: It's hard to imagine she is going to be able to get all of these MPs to come out and favor of a deal that
meaningfully is close to identical to what she already had to pull the vote for.
QUEST: It is going to be the same deal effectively?
BREMMER: You know, I mean she can certainly talk about an interim political declaration that looks more like this Norway plus, in other words
that would provide more economic opportunity for the Brits.
Of course, losing sovereignty as they do so. But the backstop is still going to be there. That's a serious problem for many of her Conservative
members of Parliament supporters, as it were. While Labour is not going to give her a win.
QUEST: Is it your view that the U.K. is moving ever closer to a no deal, or at some point does Parliament take control?
BREMMER: I think that we are moving closer to a resolution, but very slowly.
QUEST: But what does that resolution look like?
BREMMER: Right, I think that - until you - let's go back to the Grexit. Grexit - it was very hard to know until the last possible moment whether
that you were going to get the Greeks to accept terms, stay in the Euro and be willing to deal with serious like depression inducing austerity or not
because there had to be immediate consequences.
You had to create a real possibility of serious downturn to get them to make those concession. That is exactly what needs to happen in the U.K.
We are not there yet. And so the likelihood of no deal needs to go up in order to make it meaningfully plausible that we can ultimately get to a
smooth transition.
QUEST: Which is exactly what the Prime Minister I am guessing, is hoping for.
BREMMER: Yes.
QUEST: That by the time we get to mid-January with only six weeks away from Brexit and it fails, if it fails then it's game over.
BREMMER: I'm not sure it's game over. I mean, you have until the end of March. You have the ability for the Parliamentarians to ask for an
extension until May at least even without Theresa May supporting that. So it doesn't feel to me like game over in January. We're going to talk about
this for a while still.
(END VIDEO TAPE)
[15:20:05]
QUEST: The Brexit uncertainty continues to ruin the European markets. Another rough session for retail stocks. The British online retailer,
Asos, plummeted almost 40%. And in Frankfurt, it was shares in Europe's biggest online retailer Zalando that was that was down 11%. All in all,
you can see the sorry sort of sight on the screen.
Tonight, for the first time, Malaysia has filed criminal charges against Goldman Sachs. The investment bank and two former employees are now
directly accused of grave violations in a scandal involving billions of dollars in missing Malaysian money.
Goldman is down 25% since this scandal began to break in early November. Last month, I sat down for an exclusive interview with Malaysia's Prime
Minister-in-waiting, Anwar Ibrahim. He said his country will stop at nothing to hold Goldman accountable.
(BEGIN VIDEO CLIP)
ANWAR IBRAHIM, PRIME MINISTER-IN-WAITING, MALAYSIA: In every country possible where they were involved, either over here in Malaysia, in the
United States. Sure.
QUEST: So you're determined to make as much trouble for them as you can?
IBRAHIM: No, we want enough resources back to serve our people. I don't believe that the country must suffer or the people must suffer just because
of the greed of some of these corporate leaders.
(END VIDEO CLIP)
QUEST: Now, you'll be forgiven for not having kept track of this scandal, 1MDB. So consider this your crash course in what may be the biggest
financial scam in history.
1MDB was basically Malaysia's sovereign wealth fund and the goal here was to raise money for the nation -- energy, tourism, doing good -- instead,
police say government officials, particularly the Prime Minister, Najib Razak, used it as their own personal piggy bank, taking the money
themselves.
And we're not talking one or two dollars here, not even hundreds of millions. We're talking over $2 billion, possibly more syphoned off. The
former Prime Minister, Najib Razak is amongst those who have also been charged, he pleads not guilty.
Now, it's not just government that is also, investors like Jho Low allegedly used the fund's money as his own slush fund for lavish spending
on yachts, parties, buildings and the like. Now, he's believed to be in China in hiding. He says he's innocent.
And this is where Goldman Sachs comes in. Because Goldman was the bank that did the bond issuances for 1MDB. Goldman raised the money for the
fund.
Malaysia now says Goldman was part of the problem, ignoring the obvious that the money was going elsewhere. According to those charged, Goldman
not only misled investors as to where their money was going, but also that they were part of the scheme that diverted more than $2 billion of what
they raised.
Goldman Sachs says the charges are misdirected. It's worth just looking at that and pondering the size and scale. Christina Alesci is with me to say
how serious is this for Goldman?
CHRISTINA ALESCI, CORRESPONDENT, CNN: It's a really damaging development. As you mentioned, Richard, Malaysia filed the first criminal charges
against Goldman and two of its executives and essentially the Malaysian prosecutors are basically alleging that these Goldman executives and the
bank itself lied to investors, that they knew what was going on, and they essentially misrepresented these bond issuances that they did in 2012 and
2013.
And because of that, the Malaysian government now wants $2.7 billion back from Goldman Sachs in addition to the $600 million fee that the bank
charged Malaysia. And this is going to do a lot of damage to Goldman's reputation. It has the gold standard reputation as the investment banker
to the world.
QUEST: Let me just jump in there and put 1MDB - that will rumble on for many months, put that to one side. The market is down 522 points. We're
off over 2% now. So we're always at that point of the day where things can turn funny or rather unpleasant and it looks like it is happening.
ALESCI: Yes, it is happening. And I think that investors are waiting to see what the Fed does. This is a nervous market. This is pessimistic
market. Everybody's looking for some bad news, and the bad news - all it has to be is the expectation of the Fed raising interest rates and
potentially not giving investors enough information to determine what it is going to do in 2019, which is the big question mark at this point.
Most investors assume that a rate hike is coming this week, that the Fed will announce that. The big question is what happens in 2019 against the
backdrop of slowing global growth not just here in the U.S. but around the world?
[15:25:06]
ALESCI: And that's going to impact demand, and that's going to impact equity prices at the end of the day, Richard.
QUEST: Christina, thank you. Christina Alesci at the Stock Exchange. A look quickly at the Dow 30. There's no real rhyme or reason, they're all
down. Everything from AmEx at the worst at 3.78 to Boeing at the best, which is down just 0.5%. But everybody is down for one reason or another.
This is broad-based mass selling.
As we continue, we'll have more from Paul Krugman on exactly what is going on and we'll talk about international areas, Hungary and Brexit. And
Brexit is government on the brink in Britain.
There are violent demonstrations that are continuing in France. Hungary becomes the latest nation struck by a crisis as anti-government protests
turn violent. The global economy is slowing down and we need to talk more about why.
Hello, I'm Richard Quest. There's more "Quest Means Business" in just a moment when Paul Krugman is back as Hungary joins the list of E.U.
countries in turmoil, we'll get his views and the man who's run New York's subway, London Tube and Hong Kong subway is now in charge of Virgin
Hyperloop. He will be with me in the C-suite. As we continue, this is CNN and on this network here, the facts, they always come first.
A new political hurdle for the British Prime Minister and her Brexit plans. The opposition leader Jeremy Corbyn says his party will introduce a motion
of no confidence in Mrs. May, after she delayed the vote in Parliament on her Brexit deal. The vote will now take place in January.
North Korea says all the progress towards denuclearization over the past six months has been undone. In a fiery editorial on Sunday, state-run
media condemned new U.S. sanctions against three senior North Korean officials and said the U.S. was pushing the two countries back towards
conflict.
[15:30:00] A EU's top court has suspended a controversial retirement law proposed by the Polish government that would have forced out nearly 40
percent of the country's Supreme Court judges.
The ruling is delayed just in a series of disputes between Warsaw and Brussels. Poland argued the measure is needed to rip the courts of
remnants from the communist era. The critics claim it was an attempt to gain greater control of the judiciary.
Manchester United faces a tall order in the knockout round of the Champions League. They'll play PSG in the last 16 who are looking for their first
Champions League trophy. Meanwhile the defending champions Real Madrid will face Ajax, Barcelona faces Lyon.
In Hungary, tensions over new labor laws boiled over onto the streets. The controversial new rules include changes to working hours, and for days,
thousands of people have marched against the country's right wing government. The situation came to a head on Sunday night, riot police
clashed with protesters when they tried to storm the state-run television station.
Two Hungarian lawmakers were ejected from the network's headquarters after they tried to broadcast a petition protesting against the new laws. On the
streets of Budapest, one protester explained his frustrations.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE (through translator): This is now not about opposition politicians, about who stands on which side. But this is about the
discontent of the Hungarian society, that we have had enough. We both young and old, and I feel something is coming together, which has not
happened in the past eight years.
(END VIDEO CLIP)
QUEST: The Nobel Prize-winning economist Paul Krugman is with me. You have written -- you've written on more than one occasion about Hungary and
you've been most concerned about it. Is this the moment that Viktor Orban faces down?
PAUL KRUGMAN, ECONOMIST: Well, God knows. I mean, it's -- there's a tremendous amount of accumulated power. But it's hopeful, I mean, it's
good to see that this regime which has tried this kind of soft covert destruction of democracy has not managed to completely crush public
opposition.
So I mean, we saw the same thing in Poland where the elections were a big defeat for law and justice. So maybe this sort of white nationalists rule
is not an end state.
QUEST: You've been sort of critical of the European authorities for not being stronger and not doing so quicker. Today, the European courts ruled
against Poland, but the feeling is that this should have been dealt with at a political level much sooner.
KRUGMAN: That's right. I mean, what's been happening in Hungary, we -- it's best been obvious for a long time that they were chipping away at
democracy, and Poland is a shorter time horizon, but they've also been at it for years. And the EU has been unremarkably unwilling to face-up to the
reality.
I mean, we've basically seen democracy effectively destroyed in two EU nations, and the EU has only now said, well, you know, we're going to tap
you on the wrist a little bit.
QUEST: This is -- it's damning for the EU that this is happening.
KRUGMAN: Yes, it is. If this -- the whole EU is supposed to be not just an economic thing, it's supposed to be about democracy, about -- it's
supposed to be a guarantor of democracy in its member states, and it hasn't been fulfilling that role.
QUEST: And yet, Brexit, of course on the other side of it adding on, loading on the problems.
KRUGMAN: Well, yes, that's a whole other thing, and wow, what a mess. I mean, it's a --
QUEST: There's no -- there's no easy, obvious or good solution at the moment.
KRUGMAN: Well, I mean, Brexit -- you know, Brexit is I would say a bad idea economically. But it's not that bad an idea if it was carried out in
an orderly fashion. But what has happened is that there have been no contingency plans. So at the moment, if there's -- if Britain just bombs
out of the EU, it doesn't have the infrastructure, it doesn't have the customs inspectors.
The flow of goods through Dover falls by 60 percent or 70 percent which is catastrophe and a totally avoidable one. So it's amazing that they've
gotten to this point.
QUEST: And the deadline is just --
KRUGMAN: No --
QUEST: It's like we're there, we're there --
KRUGMAN: We're both there, it's as if you -- it's like, you know, flooding the tunnels for -- but nothing physical going on. It's just lack of
contingency --
QUEST: Right --
KRUGMAN: Planning.
QUEST: The Prime Minister's strategy of basically putting her deal at the last possible moment such that failure of that vote --
KRUGMAN: Right --
QUEST: Is calamitous.
KRUGMAN: Well, it's brinksmanship, and the trouble with brinksmanship is sometimes you end up going over the brink. And I -- and it's not -- yes, I
have to say, you know, I talk to my British friends and I say, there's no - - I say you know, our bad guys are much worse than your bad guys, but you have no good guys. This whole -- and this mismanagement here is just
astonishing.
[15:35:00] QUEST: How -- bringing you back to the United States and the lessons that can be learned because you've written on that --
KRUGMAN: Yes --
QUEST: As well, and when you look at what's happening in the rest of the world, and you see the -- what in your view would be the U.S.' lack of
action, lack of leadership --
KRUGMAN: Right --
QUEST: Is that what's driving things worse?
KRUGMAN: I mean around the world?
QUEST: Yes --
KRUGMAN: Well, I mean, no. That's -- we shouldn't have delusions of grandeur. Most of what's going on in the world is -- but we're not there
to the extent that the U.S. has historically been a voice, saying, we need to preserve the system, we need to preserve democracy.
Now we're out of it, if anything, we're leaning in the opposite direction. So we're -- maybe the EU should be able to take care of its own affairs,
but in fact it's proving not to and the United States is not being a help.
QUEST: There is a very volatile noxious cocktail of events out there. One MDB in Malaysia which you know, Brexit in the U.K., China trade, the U.S.
chaos in the administration.
KRUGMAN: Yes --
QUEST: All of which bodes ill in trying to suggest for what happens next - -
KRUGMAN: Yes, I mean, it's --
QUEST: Or I'm overstating it.
KRUGMAN: Well, I think the -- some of these are unrelated. I'm not sure that 1MDB -- then, look --
QUEST: No, but they could all end up being -- they're not related to each other, but they could all end up creating an effect.
KRUGMAN: Well, that's right, and the point is we normally count upon a certain amount of technocratic management and then a certain base level of
competence in leadership. And the technocrats are still there but have limited scope to act, and the base competence is really missing.
And so yes, this is what scares you. Who's in charge? Who's minding the store? Are there any adults in the room and it's hard to find many.
QUEST: Let's remind ourselves again of your master class. Have a listen to yourself giving a talk.
KRUGMAN: OK.
(BEGIN VIDEO CLIP)
KRUGMAN: Instead of saying, oh, it's complicated world, I don't get it, say, all right, let me try to figure this out. Let me make sense of this.
Doing economics requires stepping back from all of the details to say what is this essential here? What is the story? It's about people. It's not
about money, and it ends up being about what people do.
(END VIDEO CLIP)
QUEST: And isn't that what we need to remember in terms of -- I have to remind myself this frequently, that when we talk about the Dow is down
wherever and it's not just a number in the abstract.
KRUGMAN: That's right, and a kick actually right now, we talk about institutions. We have all these institutions, we have all these
institutions that don't want the institutions to save us. But the institutions are people. And if the people don't, you know, make them
work, it doesn't work.
But you know, the economics is about what people do. It's not about numbers, and it's a huge -- this is what -- one of the great fallacies is
to think that it's just about numbers, and if you look at some charts and so on, and that tells you -- the charts are only there to help you tell a
story about what people are doing.
QUEST: Finally, let me ask you, the U.S. economic team for want of a better phrase, the Treasury Secretary, the economic adviser, the Fed chair
--
KRUGMAN: Right --
QUEST: The Fed governors, do you -- the USTR -- do you have confidence?
KRUGMAN: Well, some of it, yes. I mean, the Fed is still the Fed and they're still very smart. And I don't always agree with them, but they are
hard thinkers. USTR I think there's a lot of residual competence in there. As for the rest, I mean, we have a chief economists who as people have
said, he's turned flamboyant wrongness into a form of performance art.
I mean, and so -- no, that's just -- there are -- so in a way, we've got a stool and at least one of the legs of that stool is gone. So it's not very
well supported.
QUEST: Good to see you, sir, thank you very much indeed.
KRUGMAN: Well, thank you, thank you.
QUEST: As we -- reminded that the Dow -- unfortunately, well, it's come -- the accelerating down as much as 580, major markets all down 2 percent or
more. And not surprisingly, if you see these sort of numbers, every Dow stock is lower. We opened lower, we went lower and now we're going down
even further.
They say go big or go home, that's the message big tech is taking to add as it expands beyond Silicon Valley, and there are big challenges and
transport is one. The future in just a moment.
[15:40:00] (COMMERCIAL BREAK)
QUEST: Silicon Valley, you heard, big tech is again expanding outside of California. Google says it will invest more than a $1 billion to double
its workforce in New York City. Google follows Amazon which is expanding in New York and other cities.
Now, the tech giants -- well, how to consider the entire issues of getting their staff to and from work. The challenges are enormous on systems
already facing great stress. Now someone who knows all about futuristic travel -- Jay Walder is the new CEO of Virgin Hyperloop One, previously in
charge of the transports and demands made, just financial centers, literally in New York, London and Hong Kong. And Jay joins me in the C-
suite.
JAY WALDER, CHIEF EXECUTIVE OFFICER, VIRGIN HYPERLOOP ONE: My pleasure.
QUEST: Hyperloop, and again we'll talk about these other things. How long before something meaningful? And when I say this, I'm aware this is going
to happen. This is the future. I may be -- I probably won't be alive when it does.
WALDER: I think you will be. I think you will be. That's actually the point, I think you will be. You know, last year, we built a test facility
in Nevada, 500 meters and demonstrated the Hyperloop system, worked end- to-end. You can see it, you can do it. Two hundred on that test loop, up to 240 miles an hour.
QUEST: Just remind us how it does -- it will work.
WALDER: So actually what this is doing is putting together technology that we know and understand.
QUEST: Right --
WALDER: It's creating a low pressure environment to be able to do this. And you're using pods running through a low pressure environment. And then
the other beauty of this is its magnetic levitation. So it is so smooth that at the top speeds, you should be able to hold a cup of coffee.
QUEST: Right, and let me just add dot, and it is so expensive.
WALDER: Well, look, it's infrastructure. There's no question about it. We've never built infrastructure anywhere that doesn't have a lot of costs
to be able to do it. But this is game-changing infrastructure, I think that's the big difference.
QUEST: For someone like yourself who's had real grassroots experience with the world's largest public transportation systems, subways, why did you get
involved in this?
WALDER: It's exactly the point. The point is that this is now add -- it's your question from the beginning, you said will I be able to see it? Will I
be around to see it? I think we're at that point. We're at the point where we're moving from saying, this is an amazing incredible technology to the
fact that it is now becoming a transportation system. That's what I want to do.
QUEST: When you hear people like Amazon moving into New York and Google also with another 20,000 or 10,000 staff, and it's great for the economy at
one level, but the infrastructure of this city cannot really -- I mean, the subway is already antiquated.
WALDER: So let's generalize it a little bit.
QUEST: Yes --
[15:45:00] WALDER: Let's generalize it, let's take the fact that cities are becoming increasingly important all over the world, 50 percent of the
world's population will be in cities by the year 2050. That's just 30 years away in terms of being able to do it.
We also know that the model of the city that we have today with expansion, with reaching out and doing that, doesn't really work that well, that we
need to keep it much more concentrated in the way that we're doing it. What this is really saying is reimagine that paradigm.
Imagine that you can actually have cities that are -- that are in a geographic cluster now, perhaps a 100, 200, 300 miles away, and you can be
moving between those cities in a matter of minutes.
QUEST: I feel very luddite when I -- you know, because, you know -- oh, I haven't seen the light, I haven't understood the nirvana, but I push down
to when you think one would expect to see something like this?
WALDER: I think we can begin to see construction of the next test facility by the end of next year. And I think you could be in construction on a
full-scale project within a couple of years after that. The step that we have to take, and that we have to be able to do is to be able to test and
gain the certification of this technology. But it's there and we're ready --
QUEST: So --
WALDER: To do it.
QUEST: Which cities are best suited?
WALDER: Here's one -- you know, we have in this country --
QUEST: Yes --
WALDER: We have four project studies under way right now in Texas, in Colorado, in Missouri and in the Midwest. And let me talk about the
Missouri one for a second because I love that one --
QUEST: So they'll go between --
WALDER: St. Louis and Kansas City. The i-70 right there, the first section of the interstate highway that was built in this country, now
reimagine that. Instead of thinking about cars moving at 70 miles an hour, what if we were thinking about pods moving at 670 miles an hour? That's the
incredible difference.
That journey, Google it, right? I've Google it all the time, St. Louis to Kansas City, you Google that, that's three and a half hours to get there,
that's what comes up every time -- 30 minutes.
QUEST: So tell me how much that would cost? I know, this is -- how can one put up price on the future. But how much would it cost?
WALDER: All right, estimates right now are that this is roughly 60 percent to 70 percent of the cost of high-speed rail. So we believe that this can
be done for the linear cost of high-speed rail, about 60 percent to 70 percent --
QUEST: Really?
WALDER: For the cost of that --
QUEST: Taking infrastructure --
WALDER: Well, you know, you won't -- so take the example --
QUEST: Right --
WALDER: I just give you, you want a gig, you'll do that above ground --
QUEST: Oh, yes --
WALDER: And I think again we're talking about -- we're talking about distances that are not digging underneath the heart of New York City, we're
talking about how we're connecting areas.
QUEST: Final thought, are you a masochist?
(LAUGHTER)
I mean, you -- you've taken on some of the -- you know, get your rubber gloves on, strong rubber gloves to deal with the world's subways in the
biggest cities with the most entrenched problems. And now this?
WALDER: But this one is so much fun.
QUEST: It is?
WALDER: This one is so much fun. I'm surrounded by people who are truly coming up with disruptive game-changing technology, and I have the
opportunity to go around and talk to people all around the world right now about how we are going to put this into work with them, this one's fun.
QUEST: Do I get a seat on the ride?
WALDER: I'd love you.
QUEST: Excellent --
WALDER: Thank you --
QUEST: Good. I wish I had better news for you. Never mind what's happening in the future, let's look at the present. If you look at the
present, the market, it is -- even I wasn't quite expecting that. No laughing matter but it is down 630 points. We've got 12 minutes left to
trade, who knows where -- gut tells me it can't do much worse, but then we know what gut did, we'll be back after the break, thank you.
[15:50:00] (COMMERCIAL BREAK)
QUEST: Welcome back. Earlier, we talked about how Google is expanding its workforce. The company is expanding in India, thanks to a new shopping
service. Ravi Agrawal is the author of "India Connected", and he's also Cnn's former New Delhi Bureau chief. And most important of all is a good
friend, good to see you sir, thank you --
RAVI AGRAWAL, AUTHOR: Good to be back.
QUEST: For coming here. The book "India Connected", how are the smartphones transforming the world's largest democracy. So much of India
has -- I mean, obviously leap-frog the fixed line, and in many ways --
AGRAWAL: Yes --
QUEST: Leap-frog even the basic phones --
AGRAWAL: Yes --
QUEST: You know, the analogs and have gone straight to the digitals.
AGRAWAL: Yes, that's right, and so, you know, if the west went through an evolution going from PCs and dial-up to cable and then WiFi and then 3G and
4G, India's story is not an evolution story, it is a revolution story.
Hundreds of millions of people discovering the internet for the first time on a smartphone. And it's not just the internet, this is also for most of
them their first camera, their first TV, their first streaming device and all of those things.
QUEST: So how does this actually translate itself to economic benefit? We're familiar of course with the whole idea of Bangalore and the whole
tech sector in India. But for ordinary people, how are the economic benefits being received?
AGRAWAL: Well, the smartphone boom is precisely for ordinary people. Because the old boom in India was for people who were upper class and
English speakers and tech literate. This time, it's really for people who are not any of those things. So you could be illiterate and you can still
speak to a phone.
QUEST: Doesn't India, though, no matter how good the device, no matter how -- doesn't it still suffer from a lack of infrastructure, decent broadband
capabilities and capacity, which I always find fascinating when I go to India, that the country that is the heart of much of the internet --
AGRAWAL: Yes --
QUEST: Has appalling internet service for the rest of the country or even the major cities.
AGRAWAL: It does, and that's what it's beginning to improve. So there are newer companies like Reliance Jio in India which is, you know, unrolled
this massive 4G sort of data spree across the country. And so many people who are discovering the internet in India are discovering it on phones that
cost $23 if you lease it across three years, and data that is almost free but also quite fast.
So things are getting better, but it's slower on that front.
QUEST: Has the Prime Minister ridden this wave well?
AGRAWAL: Well, I mean, you asked the question a week after he's lost election, state level elections in much of the India heartland. So it's
not a great story for him right now --
QUEST: But hold on, why he should be able to be riding this and saying, you know, look at what we've managed to do but it's not working.
AGRAWAL: Well, but everyone is riding this, right? So much of the bet on India's smartphone boom is a future boom. So there's been a lot of
promise. Everyone knows that everyone is going to get a smartphone, everyone will be online eventually.
The question is how does that translate into jobs, how does that translate into the middle class spending more? That's going to take some time.
QUEST: Good to see you, sir, thank you very much indeed --
AGRAWAL: Good to see you --
QUEST: Thank you. Now as we continue, last minutes of trade on Wall Street and well, we've just pulled up a bit, but really, frankly, not much
-- I mean, look at it, we're just slightly up a tad, still down two and a third points, some gains earlier in the day for Boeing buying majority
stake in Embraer and now everybody is out -- that's just the least worst of the rest of them.
[15:55:00] And American Express is still the worst of the day. Alan Greenspan just -- the former Fed Chairman Allen Greenspan has been talking
about the bull markets. Speaking to Julia Chatterley, and she asked Alan Greenspan if the nine year rally is still going strong.
(BEGIN VIDEO CLIP)
JULIA CHATTERLEY, CNN CORRESPONDENT: Is the bull market still intact?
ALAN GREENSPAN, FORMER CHAIR OF THE FEDERAL RESERVE OF THE UNITED STATES: Not really, no, it's really a fumble. You can see it by reaction in the
recent days. It would be very surprising to see it sort of stabilize here and then take off again. But it's happened in the past, however, at the
end of that one, run for cover.
(END VIDEO CLIP)
QUEST: We will have our profitable moment after the break.
(COMMERCIAL BREAK)
QUEST: Tonight's profitable moment, arguably the writing is now very firmly on the wall. That particular wall, look at it. Paul Krugman
tonight talks about being a 1990s-style recession. If you remember 1990s, it wasn't that particularly severe or deep, but it did last for a long time
and it was followed by quite some considerable growth, that is until you go into the Clinton years and thereafter.
So put it all together, the situation at the moment is serious and grim, but one wouldn't necessarily say grave. And as for the question of putting
up of U.S. interest rates, well, the Fed on Wednesday has a very tricky task because having been brow-beaten by Donald Trump not to put up rates,
they can hardly acquiesce or give the appearance of acquiescing, which means that a rate hike that might not be necessary with slower growth is
almost certainly going to happen regardless.
The president probably would have done wise to have kept quiet and seen what happens. The global economy is slowing down, but how bad with nobody
can say so far. And that is QUEST MEANS BUSINESS for tonight, I am Richard Quest in New York.
Whatever you're up to in the hours ahead, yes, I hope it is profitable.
(BELL RINGING)
The bell is ringing, the Dow is off the lows of the day, still heavily down, the day is done.
END
