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00:00ECONOMIC AND DEVELOPMENT REVIEW COMMITTEE AT THE OECD. WILLIAM, YOU ARE PUTTING THE WARNING FLAG UP. WHAT ARE WE MISSING, OR ARE WE JUST STARING AT IT AND IGNORING IT? > > I THINK THE SITUATION LOOKS TO ME TO BE VERY SIMILAR TO THE WAY IT LOOKED IN 2008. WE WERE SEEING ALL SORTS OF AUDIT DEVELOPMENTS IN FINANCIAL MARKETS, PRICES OF MANY FINANCIAL ASSETS ARE VERY HIGH. HIGH-YIELD ASSETS IN PARTICULAR. THEVIX IS VERY LOW -- THE VIX IS LOW, HOUSING PRICES IN MANY COUNTRIES RISING STRONGLY. ALL OF THESE ARE THINGS WHICH I THINK ARE SOURCES OF CONCERN. ANGIE: I WOULD LIKE TO HIGHLIGHT WHAT YOU ARE TALKING ABOUT. G #BTV 5692. WHAT IS FUELING THE MARKETS? DEBT, CHEAP MONEY, RIGHT? TAKE A LOOK AT THE BIGGEST ECONOMIES IN ASIA, CHINA AND INDIA. WE ALWAYS TALK ABOUT THE HUGE DEBT PILE IN CHINA WHICH COULD BE A CONCERN IF IT POPS. BUT TAKE A LOOK AT INDIA ' S BAD LOAN RATIO COMPARED TO ITS TOTAL GROWTH LOANS. IT IS MORE THAN QUADRUPLE CHINA ' S. WHAT IS GOING TO HAPPEN IF THIS GETS OUT OF CONTROL IF IT IS NOT ALREADY? > > THE ANSWER TO ALL OF THESE THINGS IS THAT WE DO NOT KNOW ANYTHING WITH CERTAINTY. THINGS COULD WORK OUT ALL RIGHT, BUT I THINK THERE ARE ENOUGH DANGERS THERE THAT ONE SHOULD BE THINKING ABOUT THE DOWNSIDE. INDIA ' S PROBLEMS OF DEBT, PARTICULARLY GOVERNMENT DEBT BUT ALSO CORPORATE DEBT, THEY GO BACK A LONG WAY. THEY ARE SIGNIFICANTLY GOVERNMENT PROBLEMS THERE AS WELL, NOT THE LEAST TO DO WITH STATE OWNED BANKS. CHINA IS NOT A LOT DIFFERENT, EXCEPT THE ACCELERATION IN LOANS AND CREDIT GROWTH HAS BEEN ABSOLUTELY ASTOUNDING. I DO NOT THINK IT WOULD HAS SEEN ANYTHING LIKE IT BEFORE. IT IS NOT JUST THE LEVEL OF DEBT THAT IS WORRISOME, IT IS THE SPEED AT WHICH THE DEBT IS ACCUMULATING. IT LEADS YOU TO BELIEVE THAT HELPS THE VETTING OF THE LOANS HAS NOT BEEN AS CAREFUL AS IT MIGHT HAVE BEEN, AND THAT SOME OF THE LOANS SHOULD ' VE NEVER BEEN MADE , WILL NOT BE REPAID OR RESERVIST. THAT IS GOING -- RE-SERVICED AND THAT WILL CREATE PROBLEMS GOING FORWARD. YOUSEF: WILLIAM, YOU ARE PUTTING OUT ALL OF THESE WARNING LIGHTS. TOO MUCH DEBT OUT THERE, TALK TO US A LITTLE BIT ABOUT THE SOLUTIONS. THE PERSON OF YOUR TRACK RECORD, WHAT WOULD YOU RECOMMEND IN TERMS OF POLICY PRESCRIPTIONS? SOME OF THESE CENTRAL BANKS SHOULD TRY AND ASSESS THOSE RISKS? WILLIAM: YOUSEF, THE FUNDAMENTAL PROBLEM IS THAT WE DO NOT HAVE A LIQUIDITY PROBLEM THAT CENTRAL BANKS CONSULT. THE UNDERLYING PROBLEM IS TOO MUCH DEBT, WE HAVE A DEBT RESOLUTION PROBLEM A INSOLVENCY PROBLEM. ONLY GOVERNMENTS CAN ADDRESS PROBLEMS LIKE THAT, IT IS NOT WITHIN THE REALM OF CENTRAL BANKS TO DO SO, ALTHOUGH WE HAVE BEEN TRYING TO DO SO FOR THE LAST 10 YEARS. MY PRESCRIPTION, AND UNFORTUNATELY IT SEEMS LESS ATTRACTIVE TODAY THAN IT MIGHT HAVE DONE FIVE YEARS AGO, IS THAT WE NEED MORE FISCAL EXPANSION FOR THOSE WHO HAVE ROOM TO DO IT. WE NEED TO STRUCTURAL REFORMS TO ALLOW FASTER GROWTH AND A GREATER CAPACITY TO SERVE AS -- TO SERVICE DEBT. A GREATER CAPACITY TO LOOK THE DEBT IN THE FACE AND SAY THAT SOME OF THESE DEBTS WILL NOT BE SERVICED AND THEY HAVE TO BE WRITTEN OFF AND MAYBE FINANCIAL INSTITUTIONS WERE COUPLE RECAPITALIZED -- FINANCIAL INSTITUTIONS RECAPITALIZED IN CONSEQUENCE. SOMETHING HAS GONE WRONG IN THE MIX BETWEEN WAGE INCOME, CAPITAL INCOME AND LABOR INCOME. WE SHOULD BE DOING MORE THINKING, AS HAS ALREADY STARTED IN CHINA ABOUT WHETHER WAGES OUGHT NOT TO BE HIGHER AT THE EXPENSE OF PEOPLE WHO HAVE INVESTED IN CAPITAL AND OTHER BUSINESSES. ALL OF THOSE THINGS IT NEED TO BE DONE BUT THEY WILL BE MUCH HARDER TO DO TODAY THAN THAT MIGHT HAVE BEEN FIVE OR 10 YEARS AGO. YOUSEF: EXACTLY, IF YOU LOOK AT THE DEGREE OF EXECUTION FROM SOME OF THE GOVERNMENTS IN TERMS OF FISCAL REFORM, THEY HAVE BEEN LAGGING OR AT LEAST MISSING EXPECTATIONS OF MANY ANALYSTS AND DECISION-MAKERS. THE FEDERAL RESERVE MEETING LATER THIS MONTH, I WOULD JUST LIKE TO GET SOME INSIGHT FROM YOU. YOU ARE POINTING TO THE GUYS IN GOVERNMENT TO TAKE ACTION. WHAT SHOULD THE GUYS IN THE FED BE DOING NOW, NOW THEY ' RE NOT GETTING THE INFLATION THERE ARE LOOKING FOR. YOU ARE SAYING THEY HAVE DONE ALREADY MORE THAN THEY SHOULD HAVE? > > I THINK THAT HOPEFULLY, IN THE CONTEXT OF CHANGES UNDERTAKEN BY GOVERNMENTS, TO MOVE INTO THE SPACE WHERE THE CENTRAL BANKS HAVE BEEN, THE CENTRAL BANKS CAN MOVE OUT, AS THE GOVERNMENTS MOVE IN. HAVING SAID THAT, IT IS NOT JUST SIMPLY A QUESTION OF REVERSING THE EASING OF MONETARY POLICY. THERE HAVE BEEN SIDE EFFECTS OF THAT EASING THAT HAVE BEEN INTIMIDATING OVER THE LAST 8-10 YEARS. WE CANNOT IGNORE THAT WE HAVE DEVELOPED A NEW REALITY, WE HAVE TO UNDERSTAND IT. I THINK THE TIGHTENING OF THE CENTRAL BANKS, WHICH IS INEVITABLE, THE MOVEMENT UPWARD IN BOND YIELDS, WHICH IS INEVITABLE, MUST BE DONE VERY, VERY CAREFULLY. THAT BEING SAID, IF THEY CARRY IS EXCESSIVE, WE BUILD UP MORE OF THESE UNDERLYING IMBALANCES WHICH MAKE THE RESOLUTION EVEN MORE DIFFICULT. WE HAVE TO BE VERY CAUTIOUS, BUT WE ARE IN A VERY TOUGH PLACE. ANGIE: WILLIAM, FOR YOU GO, AND CONNECT IN HONG KONG OPENS UP THE BOND MARKET FOR INVESTORS. IS THIS SAFE? > > TO BE HONEST WITH YOU, I AM NOT ALL THAT FAMILIAR. THE ONE THING I WOULD SAY, IS THAT VIRTUALLY EVERYTHING WE DO, COMES WITH UNINTENDED CONSEQUENCES. THE REALITY SEEMS TO BE HISTORICALLY, THAT PEOPLE ARE TOTALLY UNPREPARED AT THE POLICY LEVEL TO DEAL WITH NEW DEVELOPMENTS THAT THEY THEMSELVES HAVE ACTUALLY INSTIGATED. SO AGAIN, I WOULD SAY, DO WHAT

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OECD Sees More Dangers in Economy Than in 2007

OECD Economic and Development Review Committee Chairman William White discusses concerns he has about the economy. He speaks on "Bloomberg Markets: Middle East." (Source: Bloomberg)

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