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In episode 99 of Hidden Forces, Demetri Kofinas speaks with Claudio Borio about outstanding sources of financial instability and some of the challenges facing Central Banks as the economy and markets begin to show signs of weakness heading towards the end of 2019. Dr. Borio heads the Monetary and Economic Department at the Bank for International Settlements and has written extensively about some of the longer-term, structural forces bedeviling policymakers since the early 2000s.\\xa0

More recently, the Federal Reserve held its annual Economic Symposium in Jackson Hole, Wyoming, where Fed Chairman Jay Powell delivered a speech titled, \\u201cChallenges for Monetary Policy,\\u201d in which he addresses \\u201cthree longer run questions\\u201d bedeviling policymakers. In the speech, Powell breaks up the post-war history of central banking into three distinct eras: 1950\\u20131982, 1983\\u20132009, and 2010\\u2014. The day before Jay Powell\\u2019s speech, on August 22nd, former Treasury Secretary Larry Summers, published a series of tweets\\xa0where he conducted a similar retrospective analysis of central bank policy going back to the stagflationary period of the 1970s. According to Larry Summers, \\u201cthe high inflation and high-interest rates of the 1970s generated a revolution in macroeconomic thinking, policy, and institutions,\\u201d while the \\u201clow inflation, low-interest rates and stagnation of the last decade\\u2026deserves at least an equal response.\\u201d Further, Summers writes, \\u201cthe financial crisis had roots in bubbles and excessive leverage caused by efforts to maintain demand after the 2001 recession,\\u201d which suggests that perhaps, the maniacal focus on inflation amplified by the experience of the stagflationary nineteen-seventies blinded central banks and policymakers to a build-up in financial risks exacerbated by keeping interest rates \\u201ctoo low for too long\\u201d during the 1990\\u2019s and early 2000\\u2019s.\\xa0\\xa0\\xa0

The conversation you\\u2019re about to hear was recorded on Monday, August 19th, several days before the publication of Jay Powell\\u2019s speech, as well as Larry Summers\\u2019 tweets. Some of the key questions we attempt to answer during this discussion are: \\u201cWhat\\u2019s driving the slow growth environment that we are in?\\u201d \\u201cAre rates low because central banks are keeping them low, or are rates low because central banks, encouraged by a prolonged period of disinflation, kept interest rates chronically below the \\u2018natural rate\\u2019 for too long, thus encouraging the growth of asset price fueled credit bubbles that have turned central banks from being stewards of the expansion to now being managers of the contraction?\\u201d\\xa0

Demetri and Claudio also explore the different eras highlighted in Chairman Powell\\u2019s speech, search for the origins of inflation targeting as a policy objective, question the efficacy of neutral rate targeting, and consider some of the possible consequences that could arise from an economic model that has increasingly come to rely upon debt financing in order to grow.

In the overtime, Demetri asks Dr. Claudio Borio questions about the BIS 2019 Annual report, with a keen focus on some of the more immediate risks facing the global economy. This week\\u2019s rundown is particularly useful for those seeking to gain a deeper sense of the issues discussed during the podcast. You can access that rundown, along with a transcript to this week\\u2019s episode through the Hidden Forces Patreon Page. All subscribers also gain access to our overtime feed, which can be easily be added\\xa0to your favorite podcast application.

Producer & Host: Demetri Kofinas

Editor & Engineer: Stylianos Nicolaou

Subscribe & Support the Podcast at http://patreon.com/hiddenforces

Join the conversation on Facebook, Instagram, and Twitter\\xa0a at @hiddenforcespod