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A
Hello. We are thundering. It says here, towards the mail. Actions may not feel very thunderous where you are, but that's up to you. But we're still on the hunt for your remoter voter applications. This is where you explain to us why you're not able to vote in person on May 7th. And I love doing this because it is amazing insight into everyone's lives. So we've got one from David Gorton who says, am I one of your most distant and remotest voters? I'm 17,200km away from Westminster because I'm on a school farm near Geelong in Australia, surrounded by kangaroos, koalas. Oh, and this is my favourite. And echidna, quite a different type of wild animal to that you may find on the front benches or at the polling station. P.S. love the pod, David. Love hearing from people in very far flung places with exotic flora and fauna. But just a reminder, you don't have to be a long way away from your polling station to qualify as a remoter voter. We love just hearing your stories wherever you are, whether it's down the road or in another hemisphere. And we will be back with another episode of Election Cast in your newscast feeds on Friday, which we will record on Thursday, catching up with all the latest from Scotland, Wales and the areas of England that have local authority elections. But now we'll get on with a
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B
classic episode of Newscast, Newscast, Newscast from the BBC.
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C
Humanity's next great voyage begins.
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A
We are in the midst of a rupture.
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B
Nostalgia will not bring back the old order.
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C
Six, seven. Yeah, it's supposed to be me as a doctor. Daddy has also a special connotation.
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B
Ooh la la.
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D
Thinking about it like a panto helped.
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C
Do we play music now or what do we do?
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A
Hello, it's Adam in the newscast studio. And shortly I'll be joined by Simon Jack, who's written a really interesting piece of the BBC news website about some of the potential tremors he's noticing in the world economy. That doesn't sound concerning at all, does it? But the first half of this episode is going to be a roundup of the King and Queensland trip to the us, the state visit. Most of the action for that was actually on Tuesday when the King did two speeches, one to a joint session of Congress and then another at a state banquet where he was hosted by Donald Trump at the White House. And we thought we would dig into some of the things he was saying because I was quite surprised quite how political these speeches actually were. I had thought maybe this because of the tensions between the UK and the US and the unpredictability of Donald Trump would be much more of a sort of photo op state visit rather than a message sending politics state visit. But it turns out it was actually much more of the latter. So joining us shortly to help us decode what the King was saying will be Daniela Ralph, the BBC's senior royal correspondent, who's in New York for the last bit of this state visit. But here in the studio with me right now, James Landale is here. And I see, James, you've printed off a sheath of regal speech, regal texts.
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C
Yeah, I always like to do that because although you can watch them and you've really got to watch them just to sort of hear and see the delivery, but also you want to sometimes just go back and count, count how many times he mentioned NATO and how many jokes there were and things like that. And I, you know, I'm just old fashioned. I'd like a bit of paper rather than constantly scrolling up.
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A
Not on vellum though, is it?
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C
It's not on vellum, but, you know, I forgot to bring my new, my note, my vellum notebook with me.
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A
Well, where would you like to start? Would you like to start as sort of theater critic or as diplomatic correspondent, whatever? Well, let's do theater critic first because actually these things are a lot about the, the performance and the theater. And there was a load of that in both the speeches, the one to Congress and the one to the state banquet, wasn't there?
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C
What's really interesting is the, the, the Congress speech is really hard because of the constant interruption.
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A
Yeah.
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C
Speeches are living, breathing things, lectures and, and they have a rhythm and a pace to them and when you're sort of rehearsing them, there's, you know, I've given a few of my time not to Congress, there's a sort of flow. But if you deliver a sentence, then suddenly the entire audience stands up and claps for sort of 30 seconds and sits down again. You sort of, there's an endless stop, start. And you could see there were a couple of times where the King sort of went, come on, just, just let me get on.
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A
Yeah. And he has a way of putting his hand up where he's sort of acknowledging it, but also saying, sit down.
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C
Yes. Yeah, yeah, you know, sit down, sit down, sit down. You're rocking the boat. And so I think that, you know, there was a little bit of that going on. But he sort of, he, you know, he pressed on because sometimes, you know, you, they, they, they interrupted a sentence to applaud. But he was quite clever. I noticed that he would, he would nip back and repeat the previous half sentence before diving into the next one just to sort of keep the stitch going.
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A
So I thought someone who knows what a sound bite is.
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C
Exactly, exactly. And so I thought that was good. I mean, you know, he, the king is very good at delivering jokes. He knows how to do sort of deadpan self deprecation. He also knows how to keep going when a joke doesn't land because not every joke lands. There's always a slight sort of, you know, gap between, you know, English human or American humor and, and however good you are, there are always going to be moments where, you know, people just simply won't understand what you're talking about. And there were a couple of occasions where you could tell the audience didn't understand what he was talking about. You know, this is a certain element of, of irony of sarcasm that just doesn't quite cross the Atlantic. But by and large, as, as pieces of theater, they were well written and well delivered and, you know, landed in, in a performative way.
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A
And then there was a great bit of theater in the state banquet speech where you revealed the bell from the submarine that the UK had given Australia in the 1940s. That was the original Orcas pact and it was called the HMS Trump. Yeah, I mean, genius is gold. It's got his name on it. It's about. But it also cemented an alliance that looked a little bit shaky. Ideal.
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C
And you know, the official who discovered that, found it, obtained it, you know, top marks. Absolutely.
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A
That's diplomacy, isn't it? Right. Oh, Daniela, Ralph is on the line. Hi, Daniela. Hi, Adam, where are you right now? And I should just say we've got to about 5pm UK time as we're recording this.
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B
Yes, I am in downtown Manhattan. I am standing at the 911 memorial here, which is a really, really moving, somber place to be waiting for the arrival of the King and Queen who will be here shortly for their first engagement in New York. So a different tone and a different mood to events today.
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A
And do we know what they're actually going to be doing there, Daniela? Is it going and visiting that? There's a sort of big water feature, isn't it, which is how they've commemorated that?
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B
Yeah, that's what I'm actually just looking down into it now. It's like, I mean, it's a sort of bit like how you would imagine a reservoir, but rather beautiful. It's sort of all the water pouring into this central point with the names of those almost 3,000 people who died engraved all around the entire memorial. And the King and Queen are coming here. They will lay a wreath. Here it is this year, 25 years since the 911 attack. So they will also be meeting some of the families who lost loved ones and some of the emergency workers who worked that day. So they'll be spending some time here as well as meeting local politicians, including the city's Democratic mayor, Zoram Mamdani.
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A
And James, I mean, the King and Queen would never be so disrespectful to try and make a political point out of a giant tragedy for their host country. But thinking back to the King's speech in Congress, he did refer to the international response to 9 11, which was a big international coming together, which was a political point he was making.
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C
Yeah, well, no, he was reminding Congress that that was the one time when Article 5 of, you know, the, the North Atlantic Treaty was triggered, namely of collective military defense to defend an ally that had been attacked. And he said, you know, he also noted at the same time that the United Nations Security Council also agreed unanimously that they should take military action as a result of that standing shoulder to shoulder. So yes, he wouldn't make it on in situ, but definitely the point was made politically in Congress.
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A
And Daniela, just tell us what sort of vibes you're getting from the palace about how they feel these various speeches have gone down and in particular the, the quite political interventions that the King was making at various points, whether it's about the importance of NATO, the importance of Europe and America working together.
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B
I think they're feeling quite pleased with themselves, to be honest. Looking at the expression on some of the palace team's faces during the delivery of the Congress speech yesterday, I think they were pretty pleased with how it has landed and how the King delivered some of those points that you mentioned. I mean, there is no question in my mind and you know, like James has done, I have sat in on a lot of the King's speeches and sometimes he can get sort of a bit wordy and a bit lost in the anecdote or the historical reference or the literary quote or it is, it can be a little bit dense and a bit hard to kind of pick apart and get to. I mean, that really wasn't the case yesterday. I thought actually the way he stood and delivered the speech was really interesting. I think he was energized. I think he really liked the applause and the standing ovations and the laughs at his Gags. I just think the whole thing was a really confident delivery from him where perhaps it's not always, it doesn't always feel that way. And those around him are very pleased. I think there was a bit of nervousness last night after that reference by the president from the speech at the state dinner about, you know, Charles agrees with me about Iran not having a nuclear weapon. I think there was, because there were a lot of questions to the palace about that. But, you know, they were very clear that they felt this was absolutely fine for the President to say that, but it was, you know, the position is of the UK Government and Yvette Cooper, the Foreign Secretary, was there nodding away as the president said this. So they sort of tried to dilute any questions and controversy around that moment, but I think they are generally just really thrilled with the mood, the look and how things are being received here.
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A
And James, just decode one of those moments that Daniela was nodding to there in the SPE in Congress where he made a reference to Magna Carta and this idea of checks and balances on executive power. And that got a big laugh in the, in the chamber.
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C
The U.S. supreme Court Historical Society has calculated that Magna Carta is cited in at least 160 Supreme Court cases since 1789, not least as the foundation of the principle that executive power is subject to checks and balances.
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A
What's your take on what was going on there?
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C
Well, on, on one level, he was referring back to, you know, core documents that are the foundation of our rule of law that, that apply equally to the United Kingdom as they do to the United States in terms of, you know, and huge, you know, he cited the number of references to Magna Carta and Supreme Court judgments and things like that. So he was talking about the joint heritage of both countries. And, and the, the sort of, the, the sort of not so subtle point was, you know, we've been around together for a long time. We have a lot of shared culture. And yes, we might have disagreed a lot over the years, but ultimately the reason that we, the, the relationship is so important is because it endures despite those, the differences. But then, then suddenly, as you say, he mentioned the importance of, you know, constitutional checks and balances of executive power. And instantly all the Democrats presumed that that was a reference to Donald Trump, because obviously, under the Trump presidency, there has been this thesis, this idea, even an ideology of the accretion of presidential power. In other words, that actually the system of checks and balances that we naturally presume exists in the United States and has done for many, many, many years. There are many in the MAGA world who challenge that thesis and think actually the law has been misinterpreted and the executive, the president has far more power than is. Than the system lets on.
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A
MAGA Carter, you call it.
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C
Exactly, exactly. And that therefore President Trump is, you know, quite right to impose his authority over the courts in a way that previous presidents have to have done, imposes authority over Congress and sidesteps Congress by having massive, a number of executive orders, using his very limited fiscal powers over tariffs to almost trump the basic idea, which is that Congress does the money in American politics. And he has pushed that. So the Democrats liked that reference because they thought that was a nod to. To that, you know, to their comfort zone and their argument that they've been making against the administration.
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A
But, Daniela, that bit of the speech in Congress is a classic bit of regal rhetoric, isn't it? Because when you, you read it in writing, you're like, well, he's not really saying anything there. There isn't just a historical fact or just the law of the land in America. He's not. He's not doing a gag or a political sound bite there. There's nothing you can really argue with.
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B
Well, yeah, exactly. And as ever with these things, you know, you are. You are hearing what you want to hear from your. And that was very obvious as James has touched on, when you watched how various sides of the political divide were responding during the Congress speech. It was very much along party lines at times. You know, you heard what you want to hear. You felt positive, depending on what you heard from the king's words. I think as well that in terms of both the times we heard from the king yesterday, I think we have to see it almost as one big speech rather than two separate ones. A little bit. It was almost as if that first speech to Congress, that's where the kind of hard and dirty stuff happened, where there was a little bit of a poke and a nudge. And, you know, he really sort of delved into the politics in a way that we don't normally see. And then when you got to the evening, that was the bit to make everyone feel better and not to worry too much. There was a lot of stroking of the president, how proud his parents would have been of him. We know how great America is, how important it is. So they really did sort of complement each other and were very much seen as two separate speeches that were very much part of the same project.
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A
And James, I'm thinking back to, okay, Donald Trump hasn't said many controversial things in this visit in the last few days, but he said a lot of controversial things about Britain's role in the world in the recent past. For example, British troops not being at the front line in, in the fight in Afghanistan. The king sort of responded to quite a lot of that stuff in his own way as well, didn't he?
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C
Well, simply by, you know, reminding the fact that British and American forces have fought alongside each other throughout. Throughout history.
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A
He was family.
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C
He high cited his own family. He cited, you know, he referred to his own service in the Royal Navy after Donald Trump referred to, you know, some Britons to aircraft carriers as toys. He did name check Afghanistan. And certainly, you know, if you talk to diplomats, they say that, you know, when Donald Trump made those remarks, they said it was made, you know, the king's displeasure was. Was made clear through, you know, discreet back channels. And, you know, that that was seen as one of the reasons why the president, you know, conducted a reverse ferret on that pretty fast, because that displeasure was there. And the thing is, for the palace, that's a real, you know, when you, when you deploy a little bit of political capital like that, it's you. It's very judicious. I mean, Daniel will tell you that, you know, you know, when has the King done this? Very, very rarely. That was one occasion, perhaps another was over Canada when Donald Trump sort of, you know, made acquisitive noises over Canada, you know, that people were inferring why. Why the. The king is wearing a sort of Canadian flag and, you know, suddenly Canadians are being invited to Sandringham. And then things. Jonah, mean, there are ways that messages can be conveyed.
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B
Yes. The other thing that actually struck me on a more personal note in the King, in terms of when we're looking at the things that perhaps have upset him. His talk of his personal faith during the speech, I think was really important because we know from those working around him that there is a degree of discomfort from the King in the way the conversation around religion at the White House has played out, particularly with the Pope and the relationship between President Trump and what he has said about the Pope. And I think there is definite upset on the King's side about that. And it was interesting to me that he chose to give a pretty chunky amount of time to talking about the importance of his own faith of diversity and faith of understanding how other people think about kindness, I suppose. And that was very personal, but also in a slightly different way to some of the harder politics.
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A
Quite pointed and Daniela, you could see the political differences across the Atlantic playing out in one bit in particular in the Congressional speech, which is when he talks about his passion for nature and protecting the environment. And J.D. vance, the vice President, who was basically sort of the chair of the event, did not clap.
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B
No, I mean, it was quite silent generally at that point compared to other moments during the speech. But yeah, J.D. vance in particular did not look at all pleased with that element of the speech and was very, you know, was just sort of. I mean, it was. You just couldn't really read in. There was like nothing, nothing to see here. But yeah, I mean, that element, I would say probably the environment, the nature, parts of what he had to say to Congress, probably with the bits that didn't land quite as well as others.
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A
Quite the opposite of drill, baby, drill. James, you're flicking through your sheaf of non vellum documents. Anything else you want to flag to us?
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C
Well, the thing that impressed me most, or, you know, as an. It was impressed upon me most, was just the sheer ruthless, relentless riposte to Trumpism that these speeches involved. You know, amidst all the charm and the flattery and the, the jokes and the humor and the praise and the joint history and all the rest of it, you know, this was a. The king speaking up for alliances. This was alliances first, not America first. He spoke up in favor of NATO, into favor of Europe, in favor of the Commonwealth. He praised international law, international rules that this administration have overtly, rhetorically, and in practice completely denigrated. You know, he made it absolutely clear and said that, you know, you cannot take on the world's challenges one nation alone. And the point is that that is a complete, the complete opposite of what Donald Trump does and says. And I think he was able to make that argument. And the fact that he was able to make that argument without the administration reacting to it was, I thought, amazing because very few politicians ever come near to that. And of course, the king's not a politician. But in terms of making an argument in favor. And it wasn't just. It wasn't just the environmental stuff. It was a. It was a piece by piece, block by block argument against the core ideology of Donald Trump and his administration. And I. So I think the real test for this trip is not, you know, does Donald Trump's genuine warmth and affection for the King sort of begin to smooth over some of the cracks between the two governments? I think it's. Does the White House allow some of these arguments to sink in? Do they think. Actually, hang on a minute, there is an advantage here. You know, do we need to think differently because of the way the whole Iran thing's gone? Do we need to think differently about alliances, blah, blah, blah. Do we need to, you know, if, if America, for example, wants to focus on China and a bit on the Middle east, is it not better to have allies in Europe kind of doing what the Americans want, you know, sort of on as a form of an alliance now, you know, the, the realist will go, this trip's not going to make a blind bit of notice and a difference.
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A
Yeah.
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C
And that actually, Donald Trump will carry on being Donald Trump. And this is, this is. You can, should. This is separate. This is about, you know, the soft soap and the, the, the emotion and it, and it doesn't touch the American concerns over lack of British military firepower at the moment. But I thought that was the interesting question is, does the White House think the President likes the King? The King makes an argument, should we therefore listen to that argument? I don't know the answer to that question yet. Yeah.
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A
Daniela, what's your take on that? Because it's about what's this visit meant to achieve? Because sometimes it feels like, oh, it was just meant to achieve not going wrong and not being a disaster and Trump not blowing it all up. But then also sometimes it seems like, oh, this was about trying to move to a new page of UK US relations. But then equally, some people saying, oh, yeah, this was an attempt to try and change Donald Trump's mind about, like, how he, how he engages with the world. What's your, your take in Buckingham Palace's take as well, on just what they were sort of trying to get out of this?
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B
Well, we've been told a number of times by some of the diplomats involved in setting up the trip and working on the planning that they do not view this as a reset and they don't like that kind of language. But they've also said that the government didn't go into this trip with big objectives to come out the other end, like we often have on these state visits around trade and things, that there aren't big objectives. Here it is much more, as we know, about the mood music and how everyone feels about each other and the state of the relationship. But it's interesting listening there, because the thing that strikes me about the state visit is sometimes it definitely doesn't cover up the crack. It really highlights where the joins are splitting, I suppose, in many ways, and it doesn't. And I feel that has done this a bit, because when you look at the two men as individuals. I mean, have, you know, the king and Donald Trump ever felt further apart as they do at the moment? You know, you have this brash shoots from the hair kind of, you know, loves the cameras, loves the attention kind of President with this quiet, really respectful, strained, thinks, really thinks very carefully about everything he says. Human being, they are just polar opposites. And I think ultimately the job here was just to try and soften the edges of that relationship and try and find a way that perhaps others working with them can now move forward more politically and diplomatically. But, yeah, I mean, it has really struck me that it hasn't necessarily brought people together. It's just really emphasized how different both administrations are.
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A
And Daniela, just the Jeffrey Epstein situation, how is that being addressed either indirectly or directly?
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B
Yeah, it isn't really. There was that very short line in the Congress speech yesterday about victims of society's ills, which was, we are told by Buckingham Palace, a reference to victims of sexual abuse. So that was the closest that the king has come to any direct reference to Jeffrey Epstein or his victims and survivors. So, I mean, it isn't being addressed, as the palace has said, you know, that it isn't that they don't want to, it's just that they can't because legal advice says that should they step in and lean into the Epstein conversation while they are here, that there is a chance it could jeopardize the legal process for the victims who are still in pursuit of justice around that.
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A
And then, Daniela, the US Part of the visit is drawing to a close soon. And then the king and queen get on separate planes.
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B
They do. Yeah. We've got this day in New York today where just a day trip here where the king will have the 911 memorial. The king then goes up to Harlem and the queen is going to New York Public Library where she'll be there with the author Harlan Coburn and the actress Sarah Jessica Parker at a literary event there. Then the final day in Washington tomorrow, there'll be a big goodbye in the morning. And then the king and queen will do some events that are more public facing in Virginia, which will be a sort of different mood. There'll be walkabouts, they're going to a blocked party. And so a different, I think the sort of bit of the tension will have eased tomorrow. And yet then for the king, it is Bermuda, a British overseas territory. He'll spend a couple of days there in the sunshine on events around the environment, around cultural ties and community engagement.
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A
Well, Daniela, thank you very Much for bringing us up to date and thanks for fitting in. Newscaster and you've got so many other bits of the BBC to do as well so thank you.
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B
Always here for you, Adam. You thank.
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A
Oh, thank you. Are you a big Harlan Cobin fan, James? Mid range thrillers.
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C
Yeah, I, I'm, I'm more Jack Reacher guy.
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A
That's another kind of mid range thriller though, isn't it?
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C
Yeah. And I'm in that genre that, that's, that's where I sort of land.
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A
And of course Sarah Jessica Parker was the judge of the Booker Prize, wasn't she? So she's not just, it's not just random showbiz, it's. There's a literal, I think she's, she's
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C
probably better known for other roles now
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A
in other institutions based on primogeniture. Today is a big day in Parliament in the uk, isn't it? Because the last hereditary peers, so the people who inherit their titles from their dads and then get sit in the House of Lords as a result are going they've been chucked out.
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C
It is it, it does feel like an end of an era. It's certainly an end of an era in my career because many, many years ago I was the House of Lords correspondent for the Times newspaper, remember it well and I spent a lot of time there talking to hereditary peers. But what was interesting was during the Blair election of 97, the two things that always got a good. I was on Blair's bus and the two things that always got a big cheer was getting rid of the royal yacht, which was considered a waste in those days and the royal family was very popular in those days. And secondly, getting rid of hereditary peers, that was seen as a sort of, it was a sort of physical manifestation of, of oldness. Yeah, that new labor was the solution to do. And then they, I remember them all telling me, oh, we're going to get rid of the whole House of Lords, we're going to get rid of all the flummery and all this. And of course the moment they got in they fell in love with it and sort of rather liked it as
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A
everybody always does, and then realized they could create their own peers too and
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C
could create their appearance. And I remember and then so Tony Blair sort of set off to sort of get rid of hereditary peers. And then of course the peers brilliantly fought a rear guard action as, as the British aristocracy had done ever since the early 1800s, you know, during the Reform Acts and all this, where they ceded power inch by inch. Bill by bill, you know, from the, you know, the, the, the Reform Acts and then up to, you know, the, the legislation in the early 1900s when the House of Lords had some of its powers constrained and all and all of this sort of thing. And exactly the same thing happened in the late 1990s. And Tony Blair thought he was getting rid of all hereditaries then. But a guy called at the time, his name was Robert Cranbourne, Lord Cranborne, he's now Robert Salisbury or Lord Salisbury and he was the leader of the, the Conservative leader in the House of Lords. And this was the era when William Haig was Prime Minister and he basically
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A
did William Hague was leader of the Opposition want to be Prime Minister.
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C
Exactly. And basically went behind William Hague's back and did a deal, private deal with Downing Street. And Blair when basically said, okay, we will eventually let your reforms through, but you are going to save 92 hereditaries who are going to carry on. And he did this deal without telling Haig and so Hake had to, had to sack him. And the reason Blair gave in to that was because he was just so bored of the whole thing. There was a, there was a, you know, there was a story, I remember once about how it was being brought, this issue had been brought up again at Cabinet and Blair started publicly yawning because he found the whole thing so, so boring. But that's why the hereditaries have survived for so long and here we all are and they're only now leaving Parliament.
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D
Yeah.
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A
And I also people, I can imagine people going, oh, why do you even care about this? But I just think it's, it's a metaphor for like why people. It's easy to say you'll modernize our state, but actually the reality of doing that is much harder and can take a lot longer than anyone thought. Maybe even like 30 years. James, thank you very much for bringing us up to date with that long running story.
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C
Thank you.
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A
Now, as promised, we're going to catch up with BBC business editor Simon Jack, who's written a piece of the BBC news website today on the in Depth section about some of the little tremors some people are noticing in the world economy right now. So here's my conversation from earlier with Simon Jackson.
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D
Hello, Adam.
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A
What made you think back to 2008?
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D
So I remember covering that and I
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A
think we all do. Yes.
- [29:38]
D
I mean I didn't think I'd ever cover a bigger story in my life. And of course then we had Covid, blah, blah. Anyway, the point was is that before the kind of earthquake that happened in 2008 and Lehman Brothers going bust and the world going into a financial crisis, there were a couple of tremors that happened before that. And some of the tremors that happened then, some people have identified as happening now. So you've got three things going on which have echoes of that time. One is you've got surging energy costs. Back in 2007, you saw very high rising energy prices. You had the stress in some parts of the financial system. Back then it was a couple of funds that were investing in subprime mortgages suddenly closed down and said investors couldn't get their money out. Right now you see a couple of things called private credit, which I'm sure we'll get into. What that is saying you can't have all your money out. It's a bit like a slow motion run on a bank, like Northern Rock, for example, which was in September 2007. And then you had also some stretch valuations. You had, you know, the stock market at or near all time highs. Now you look at the financial headlines now, they look a bit like that. You've got surging energy prices, you've got distress in some of the financial system and you've got what, what some people call stretch valuations in terms of particularly the amount of money that's going into AI. Now if you add all of those things together, do you have the ingredients for another financial crisis and how might it resemble the one in 2008? And I've been speaking to the deputy governor of the bank of England, other people, Mohammed El Erian, you know, esteemed economists, and they say they do see some echoes of that. And you know, they agree there are some risks which are being underappreciated.
- [31:24]
A
Okay, so you spelled out the three kind of tremors there. Let's look at each one individually and try and work out what they each mean. The first one, oil prices. But actually that's quite, that's quite simple to get your head around, isn't it? Because that's just, we've been talking about it a lot because the Strait of Hormuz we now know actually these things take a while to filter down and they can pop up in all sorts of different bits of the, the economy rather than just things that are dominated by oil.
- [31:46]
D
Yes, exactly. And what they tend to do is push inflation generally up, which in turn can begin to push interest rates up. And rising interest rates places place stress on the financial system because basically it makes it more expensive for people, for businesses to borrow Rising inflation at the same time takes money out of people's pockets. It's generally a bad thing.
- [32:10]
A
Because I know I'm sometimes guilty of this of like, I see a headline about oil prices going up and I think, well, I don't have a car, so I don't have to worry about the price of, of petrol. But then I realized that's a very naive view of how the global economy works. I do eat food. Yes, sometimes. Sometimes quite a lot of it. So then my second thought is, no, no, I am directly affected by this. So then the second tremor you're talking about was this whole thing about private markets. Now that is almost like a label designed to make you switch off and go, well, that sounds boring, but just explain what that actually is and what's going on in these markets.
- [32:37]
D
Okay, so after the financial crisis of 2008, nine banks had lots of rules applied to them so they couldn't get into risky lending. So they were much more cautious about lending money. And out into that void sprung up a whole new industry where basically, rather than banks lending money, these funds would collect money and they would lend directly to businesses. They're like mimicking banks and they're called non banks or sometimes shadow banks. So that is private credit. And this industry has grown from zero in 2008 to about two and a half trillion dollars today. And it. And because they are not banks, they're not regulated in the same way as banks. And no one really quite has a microscope on them, so no one really knows what they're doing. But they are lending money at a pace to lots of companies. And the fear is, is that some of the money that goes into these funds which then gets lent onto business, is borrowed in the first place itself. So you have what they call, you know, the debt is leverage, they call it. And so you've got this layer cake of leverage, leverage upon leverage. And when you have all those things going on, they can interact in really unpredictable ways.
- [33:48]
A
That really reminds me of 2008.
- [33:49]
D
Leverage upon leverage upon leverage. So, so, so you've got private credit, which is misunderstood, poorly regulated, pretty opaque, quite complex, and very likely highly leveraged. And it's never been tested, this new market, through a distressing time, which is what we potentially have now.
- [34:06]
A
And just in terms of the name for it, private credit credit, when we talk, when we say the word private, that sort of makes us think of like rich individuals or rich families, but it's not, it's not that, is it? They're not the, they're not the source of the credit of the funds.
- [34:19]
D
No, there are some institutions like pension funds who'll put a bit of money into private credit. But there are also retail investors, particularly in the US who will say, oh, I'm going to put some money into that. And what, that's where the stress has been. We've seen that because there's a couple of blue owls, blackrock, Apollo, these are quite big names in the US and some of them have retail investors who've seen some of these scares and now want their money out. And what we've seen is it's a bit like a slow motion run on a bank. They want their money out, but the point is, is that the money they want out has already been lent to somebody else.
- [34:54]
A
That's what leverage is.
- [34:55]
D
And just like a bank.
- [34:57]
A
Yeah.
- [34:57]
D
And so they've had some of those funds, have either had to say, sorry, you can't have your money out, you want all your money out, you can have 5% of it now, you can have 5% of it, blah, blah, blah, or they've marked up big losses and in some cases gated their funds completely. Which means, like, I'm sorry, until further notice, you can't get your money out. Now, of course, when people see that and because, well, I better get my money, you know what I mean? Those things, you know, like we see a run on a bank, it's like a slow motion one of those. And that is the distress we're seeing in the private credit market. Now, private credit is quite small compared to the overall market, but it's as big now as the US subprime mortgage market was in 2008.
- [35:39]
A
Right. Just because it's small doesn't mean, doesn't have tentacles that spread out in other places.
- [35:42]
D
Correct. Because once people think you've got some nasties that, you know, lurking somewhere, they go, well, I might not, you know, I'm bank A, I might not lend money to bank B because I think Bank B has lent money to one of these private credit funds that I don't know. So all, you know, it's basically the fearful whispers get around. Now, we're not at that, that stage yet. I want to make that just to be clear. Yeah, perfectly clear. But, you know, is there distress in some parts of the financial system? Yes, there is. And a lot of people talk about. Now I did an interview a couple of weeks ago with Larry Fink, who's the world's biggest money manager. He runs BlackRock and he says, I see zero similarities with 2007 just put that on the record. A lot of people saying there's nothing to see here. Other people say, you know, it's not enough to bring down the financial system, but it's a risk which is flashing on the dashboard.
- [36:28]
A
And also it's always worth remembering back to 2008. Before 2008 there was 2007 obviously, which is when we had what was known as the credit crunch. When banks stopped lending to each other.
- [36:38]
D
Correct.
- [36:38]
A
People sort of conflate the credit crunch and the global financial crisis, but actually there was two separate bits there, weren't there?
- [36:45]
D
Well, the credit crunch in a way sort of brought about the financial crisis because once you shut off the supply of credit, banks aren't like normal companies. They're like the bloodstream of the economy. They make sure that wages get paid, that companies can borrow money, that things get financed, all that kind of stuff. So if, if banks get sort of infected and sclerotic, the whole body economy sort of seizes up. Now the good news is right now is the banks, because of the lessons we learned in 2008 are much better capitalized. They've got much more shock absorbing capital. They're not so you know, it takes much more to knock them off their perch than it did today and it's not. And that in and private credit on its own I don't think would be enough to bring about the kind of crisis we saw back in 2008. But there are other factors.
- [37:35]
A
And then the third kind of tremor you were identifying is, yeah, the valuation of bits of the economy and in this case tech companies and in particular how much they've spent on AI, which is eye wateringly, mind bogglingly enormous.
- [37:49]
D
Well, they spent about $2 trillion on pouring money into AI and a lot of that has been quite a few big companies. And here's a staggering statistic. We have this thing called the S&P 500, which is an index of the 500 biggest publicly traded companies in America. Now the entire value of The S&P 535 to 40% of it is concentrated in seven companies. And they are the ones that you would expect. Nvidia, Microsoft, Amazon, et cetera, Google, well, the parent company, Alphabet. So whether people like it or not, even people who put their money in index trackers or whatever, and a lot of people in the US do that. And a lot of pension funds here
- [38:33]
A
in the uk you can just buy a fund that matches that index and
- [38:37]
D
you think, well I've got a nice diversified portfolio, I'm tracking 500 companies well actually, whether you like it or not, you're taking a pretty big one way bet on the future of AI and that with the tons of money going into it, lots of people have said a lot of that money will end up wasted. Yes, it's going to change the world. That doesn't mean, just like the railroad changed the world, doesn't mean there wasn't some massive busts there along the way. Just like we had the dot com boom and then bust the Nasdaq tech heavy Nasdaq back in 2001 lost 80% of its value in about a year and a half's time. Now no one is suggesting that's going to happen, but once again, if you were to get, you know, somebody just in the market changing its mind, we've all got a bit too excited about AI. We don't think it's going to get the returns to justify this investment. If you get a fall in that, you get a fall in overall stock markets and that dense confidence and just adds the, you know, the overall sense of uncertainty.
- [39:34]
A
And as part of your kind of look at all of this stuff, you spoke to Sarah Breeding, the deputy governor of the bank of England who's kind of her job is stability. So she must be thinking about this a lot.
- [39:44]
D
Yeah, she does. And she says, look, you know, and again she says that none of these single risks is enough to create a 2008 style crisis. But what she said in her own words, and you can go back and listen to this, is that what keeps me awake at night is the risk of these, all these different things crystallizing at the same time and whether the financial system is resilient enough to cope with it. Now again, she says that the real thing that can infect the whole, the whole economy is if the banks start going bad. And she says the banks are in much better shape. So that's the good news. The bad news is the deputy governor of the bank of England, concerned for financial stability is being kept awake.
- [40:22]
A
I was going to say like if you're a regular, okay, she's not a regulator in the strict sense of things, but she is, she's one of them. She's a guardian. Yeah, being kept awaken. I mean maybe there are other things going on in her household, I don't know. But yeah, that is a concerning thing for her to have said.
- [40:35]
D
Yeah, so. So I think the verdict is in a way is that, you know, there's no one single risk which poses the same kind of risk that the banking crisis did. The for the world economy. But there are the ingredients there that, if combined, could create a pretty severe financial and economic shock to the world economy. And it comes at a time when, if you cast your mind back to 2008, 2009, Gordon Brown, for example, Alistair Darling, they were one of the leaders of what was an international response to that crisis. They did things like they would cut interest rates at the same time in different countries. They would bail out banks at the same time. It was very coordinated. Let's all get around a table, both government and central banks, and try and fix this in a kind of, you know, howitzer kind of way. We're going to, you know, throw the kitchen sink at this, I think, with, you know, geopolitical tensions, with trade tensions with China versus the US kind of tensions. The idea of the world coming together to tackle a financial crisis is much harder to imagine now than it was back then.
- [41:36]
A
And also there's going to be a big newcomer on the world financial scene with the new head of the Fed in America. Just tell us a bit more about him and what his mindset is.
- [41:44]
D
So his name is Kevin Walsh. He's Donald Trump's pick to be the next Fed governor, and he's gone through the first hurdle of being appointed. Now, he is somebody who is not a fan of printing money indiscriminately to basically bail out everyone. He thinks that when you print money, what you do is that you, one, you can stoke inflation, and when you've got high oil prices, you don't want to be doing that. And second, that what it does is artificially it inflates the value of assets. And what that does is the people who the haves get, you know, have more in terms of people who own assets. So it actually stokes inequality. So he is, you know, so it's
- [42:26]
A
good for people who are already on the housing ladder, but not great for people who want to get on it.
- [42:29]
D
Exactly.
- [42:30]
A
So recent history has shown.
- [42:32]
D
So his ideology, what we know of it so far, is that he's much less inclined to sort of start the printing presses of money to kind of flood the market with new printed money, which helped back then. He's much less likely to do that than his predecessor, Ben Bernanke, at that time. And therefore we can't rely on that particular hose pipe. And as Mohamed El Erian, esteemed economist and chief chief economic adviser to a former German Allianz, and used to be the head of the world's biggest bond investor. So he knows what he's talking about. He said it's a bit like a fire brigade that's run out of water. Because he points that if you look at government's ability to intervene, look what we've been through. Well, the bailout of the banks and all the stuff we just talked about. We then had Covid where we were paying millions of people's wages. You then had the last energy crisis where energy bills were being subsidized in 2008, debt in the UK as a percentage of the whole economy, the national income was 40%. It's now 100% pretty much. So the government's ability to respond is much, has been eroded much more.
- [43:33]
A
And I know you're not being a Cassandra here, you're just pointing out some of the things that people are saying and some of the potential consequences. But it does still surprise me that things like the American stock market has gone back to exactly where it was, if not higher than it was before the war in the Gulf, the war which is not over yet. And most of the economic consequences have not actually been felt in real life yet.
- [43:55]
D
Yeah, so you've got. That is absolutely staggering. And this is a point that I put directly to Sarah Breeden, the deputy governor of the bank of England. I said, hang on a second, you know, macroeconomic shock. So that means something that really shocks the financial system, an energy crisis, is it? Don't forget that Fati Birol, who's the boss of the International Energy Agency, said that what we're seeing now, the ongoing shut of the Strait of Hormuz is the biggest energy shock we've seen in our lifetime. Worse than 1973.
- [44:22]
A
Doesn't he say it's like all the other ones, all the other ones put together? He does say, like everyone who's ever been alive hasn't experienced cumulatively what we're about to go through now.
- [44:31]
D
He does say that. And now, and at the same time you say the stock market, is it actually set an all time high, you know, earlier this week or at the end of last week. So again, so the similarities come in, you know, stocks at or near all time highs, surging energy prices, potential, you know, economic shock there stretch valuations. And what was interesting about Sarah Breed and I sort of pushed her, I said, she said, I expect to see an adjustment in stock markets. When you say adjustment, do you mean stocks go down?
- [44:59]
A
Yeah.
- [44:59]
D
Yes, I do mean stocks go down. Now that's pretty unusual language for a central banker. Usually they talk in code. Alan Greenspan's favorite expression was irrational exuberance. What we said or the risks are to the downside, all that kind of stuff. She actually said, I expect stock markets to go down because they're not fully reflecting the number of risks that we've just talked about are being reflected in those prices.
- [45:24]
A
And also talking about bankers talking in code, there's an interest rate decision tomorrow. Is there?
- [45:28]
D
There is.
- [45:28]
A
So we'll get some more code from the bank of England.
- [45:30]
D
We will get some code.
- [45:31]
A
And when I say tomorrow, I mean Thursday, because we're recording this on Wednesday.
- [45:33]
D
Yes, on Thursday. And that's, it's a toss up at the moment. I think the prevailing betting is that they will keep interest rates unchanged because often bankers try and look through what they see as short term volatility, saying, okay, what's going to happen in six months or nine months or whatever. And so they'll try and look through this. But you know, there's a lot of people thinking that this war, you know, the us, The Pentagon and the White House thinking what was going on Iran would be over by now. It is still resolutely shut, the Strait of Hormuz. So, you know, we'll see. And also we got a, you know, got a Federal Reserve rate decision, the central bank in the US Also later this week. So lots of data points. And could I just also point out, yes, just after, around, around 9pm on Wednesday. Tonight we will get earnings from Microsoft, Nvidia, Amazon and others, four of the big seven, if you like. And that will be seen. Everyone is literally holding their breath because as Bloomberg put it, the fate of the entire stock market depends on how these companies do. So every single thing they say is being watched minutely. So by the time you're hearing this, we'll probably know a bit more.
- [46:50]
A
We could all be richer or poorer. Simon, thank you very much. We're definitely richer for listening to you intellectually.
- [46:55]
D
Thank you, Adam. Nice to be here.
- [46:57]
A
Well, what a cliffhanger to end this episode of Newscast On. By the time you're listening to the next one, we will know the quarterly earnings of those big companies and have a real sense of where the economy might be going. Fingers crossed, everyone. Right, we'll be back with another newscast very soon. Thanks for listening to this one. Bye bye.
- [47:12]
B
Newscast, newscast from the BBC.
- [47:14]
C
Well, thank you for making it to the end of another newscast. You clearly ooze stamina. Can I gently encourage you to subscribe to us on BBC Sounds? And then without having to do anything else, our meandering chat will miraculously make its way to your phone.