Deep In the Red

[00:00:00] The Why Curve, with Phil Dobbie and Roger Hearing. It's getting more expensive for governments to borrow money. Much more expensive. And not just for Britain. The US already owes $40 trillion. And fewer investors are confident about lending them any more. And the rising interest payments mean governments have less to spend on everything else. So why is there this surge in the cost of borrowing? And what will it mean for already cash-strapped administrations?

[00:00:25] And what is the effect going to be on future generations who are going to have to pay for their forefathers' loans? The Why Curve. Well, there's quite a bit to unpack here. This is economics we're talking about, isn't it? Which means that it can get complicated. We're in your wheelhouse. It can get very complicated very quickly. So just on that thing about future generations paying for their forefathers' loans. I mean, it's not entirely right because the money doesn't disappear. Just as people talk about the magic money tree.

[00:00:55] There's not a magic money pit either. So when the government issues bonds, people buy those bonds. So those bonds exist. People are paid for those bonds. They still hold those bonds. So future generations, if you die and you hold bonds, the future generations will get your bonds. What actually will happen, though, is that the people who are wealthy and invested in bonds will be having the money. And if the government spends less, then the people who normally are recipients of government spending won't get as much.

[00:01:25] So there will be a... Those are our children and our grandchildren. And, of course, you've also got the build-up of amount of debt increases. That's the point. Yeah. But the debt hasn't gone away. There'll be people who own that debt who will do quite well because they're holding the bonds and they're getting the commissions on it. But if the government spends less, then everyone suffers because of that. So there we are. That's this week's episode sorted out. We'll see you again next week. That's all sorted out now. What do we need to do next? No, the point in all this is what's interesting. And, you know, I mean, I barely understand anything about bonds.

[00:01:55] I have to admit that. Even though you work for Bloomberg for how many years? Even though I work for Bloomberg, yes. Did they cotton on that you didn't know anything you were talking about? No. No. You got away with it. Right. Okay. Anyway. But the point in all this is that the money, it seems to be getting to a crisis. I mean, you're talking about bonds. They're not getting too technical. You have 10-year bonds. Pretty basic thing for the U.S., you know, treasuries, U.K. guilts.

[00:02:21] The amount you have to pay, the amount the government has to pay people to lend them that money, it seems to be going wildly up the yield. And I wonder if it's even survivable because you've government simply can't sustain this amount and at the same time deal with all the other many demands that are on them. Well, Japan has for a long time, of course, and their debt level is just stratospheric compared to even the United States. But let's examine all of that with our guest today. Mohamed Ali Nasir.

[00:02:49] He's Professor of Economics at Leeds University, and he joins us now. So, Mohamed, I mean, these are very unusual times, aren't they? Because bond yields, and we should explain just what bond yields mean, but they are going up, and they are going up to levels that in some cases we haven't seen for decades. And it's not just a U.S. phenomenon. It's happening all over the world, isn't it? Yes, indeed. It is happening all over the world, and particularly in the major economies,

[00:03:15] which usually have very low yields, and their debts are considered safe heavens. But countries like U.K., U.S., even Japan and Germany, we have witnessed that in the recent years, their yields have increased to, I could say, in the modern history unprecedented levels. So, yeah, that is indeed... That's really interesting.

[00:03:42] You're saying it hasn't really happened like that before. And perhaps we should just put in parenthesis, the yield is the amount of money that the person who lends the money is effectively getting back from it. So it's, if you like, the profit, I suppose, of that. And why do you think this is happening? Why are we in this state? So you correctly described it. Yield is... I mean, we say yield, but it is yield to maturity.

[00:04:09] So in a sense that a lender, how much he earns over a period of time when he lends money to the borrowers. So for a borrower perspective, it is like a cost of borrowing. So why it is happening, there are a few factors we'll have to look at in its context. Yield's been quite low on the government bond since the global financial crisis, 2008.

[00:04:40] There were a few reasons for that. One major factor which I noticed not many people are talking about is the central banks. They were, after the global financial crisis in UK, in US, and in other major economies, the central banks did what we call QE, quantitative easing, or large-scale asset purchase program in the US,

[00:05:09] or in the Eurozone, it is called asset purchase program. But it's the same thing. Basically, the central banks were buying government bonds in very large quantity. I mean, in the UK, at its peak, the government bond, the Bank of England had bought, they were about 895 billion pounds.

[00:05:33] Now, post-COVID, they bought in large quantities during COVID also. But after COVID, as inflation increased, the frontal banks started to sell those bonds. And currently, the level Bank of England is holding is a little less than, I was just looking at statistics this morning, current statistics of September 2026.

[00:06:03] Now, the Bank of England is holding UK government bonds, which are in amount less than 500 billion pounds. So, in a sense, it has sold over 400 billion worth of UK government guilds or bonds. So, what is, what is, what is, what is, and that, I understand that's the reason. So, why would the government just not then say, or sorry, the central bank then not say, because, of course, they are fiercely independent.

[00:06:32] Why would they, except in some places like Japan, why wouldn't they just say, well, tell you what, we're going to buy more of these bonds back. So, there's less bonds out in the marketplace and therefore, they're scarcer. So, people will pay a little bit more for them and that's going to bring those yields down. What's stopping them doing that? Because, honestly, Japan had heavy debt, still does, for a long time. And the central bank was holding almost all of them.

[00:07:00] I mean, if they had taken my advice, I would have stopped them from doing it. But they also have the objective of what they call price stability, targeting the inflation around a 2% annual rate. But inflation after COVID increased, it increased manifold above the Bank of England's 2% target. So, to tackle that, they used these instruments.

[00:07:30] They increased the interest rate. By the way, they also led to increase in the bond yields in the developed countries. So, not only Bank of England, but Federal Reserve in the U.S. and ECB, they increased interest rate or their policy rate. And that influenced the interest rate of everything from our mortgages to the rate at which the firms and businesses, they are borrowing.

[00:07:59] And that also affects the yield on the government bond. Because if the bank is offering you 5% and the government is offering you 2%, obviously, you will lend your money to the bank. So, it's very simple math. So, that was a major factor. So, I think where we are now, if you ask me and I express my opinion a bit bluntly,

[00:08:24] I think the central banks, their monetary policy and tightening to tackle the inflation, which I have written on this topic. My writings are available on The Conversation UK. And my suggestion was that this is an inflation shock, which is due to some other factors, which include supply chain bottlenecks, the supply chain disruption, which was caused by the COVID,

[00:08:53] due to the energy price shocks. So, you can't solve energy crisis by increasing the interest rate. So, it was a wrong remedy. But the central banks, they have this one instrument, monetary policy, and they do use it sometimes a bit recklessly. And their objective is to reduce inflation. But we got to think that at what cost we would be able to reduce inflation.

[00:09:22] Well, the costs have a big economic downturn is the answer to that, isn't it, really? And they are doing more and more of it. So, every central bank now is expected to be lifting interest rates maybe once, maybe twice, maybe three times in all the major economies. We don't know how far they're going to go. And you're right. It's trying to use a blunt instrument to tackle what is basically a supply shock because of what's happening in the Middle East. It's not going to fix that unless we get a major downturn in the economy and then everyone stops spending money.

[00:09:51] And I'm not sure that's what we want. Well, it feels like that might be coming, I have to say, in terms of the costs on everyone. Surely that's, in a way, the self-righting solution. That people just stop because they can't afford it. Indeed. I mean, if there had been economy being booming and we would say people are consuming too much and spending too much and it is a blenzer and their economy is growing at, I don't know, 5%, 6%.

[00:10:19] And we are doing great and we are spending recklessly. And that is the reason demand, it is demand-fueled inflation. But that is not really the case. The inflation is caused by these wars, either in Europe, in case of Ukraine, or in the Middle East, supply chain disruption, increase in the energy prices, increase in the food prices. So those are the causes of inflation.

[00:10:49] This is a supply-side inflation and then using an instrument which is affected from the demand side, which basically suppresses the economy and stops people from buying by killing their purchasing power. And that brings the prices down. So that, I think, is not really a good solution. I would rather live in a world where there's a little bit higher inflation, but people still have money to buy.

[00:11:16] And their mortgage rates and their interest payments on their credit cards and their loans, they have not skyrocketed. So they had to cut on fuel, food and other necessities, which could then definitely bring the inflation down. Well, Mohamed, let me come back to a very basic thing on all this, because my understanding is, like many people's bonds and what have you, is a bit limited. But essentially what it is, you have investors out there. They look at the world, where do I put my money to try and get a safe but reasonably high return?

[00:11:46] Now, if you are interested in, if you're seeing a very dangerous world out there with big crises in terms of wars and all sorts of other factors and the energy problem beyond that, you're looking and say, well, I want to put my money somewhere safe and secure. What could be more secure than a government bond, particularly, say, a Bund, a German Bund or a U.S. Treasury? And therefore, because I want to put my money there, surely the price comes, the yield comes down,

[00:12:13] because I'm quite keen to have my money in somewhere where I have great confidence that it's not going to disappear. Yeah, indeed. I mean, that was the reason the yields on the government bonds was very low from 2008 until central banks started to increase the interest rate post-COVID. In some cases, like I gave you examples of Germany, in Germany and in Japan,

[00:12:41] there were occasions where actually the yield went negative. So essentially, the investors were lending money to the governments to borrow from them with the negative real yields. In real term, the yields were negative. That was a very good time, by the way, for the governments like Germany to spend more and stimulate their economy. And I have also written on that issue.

[00:13:07] But I think they stuck to their fiscal rules, like we are sticking to our fiscal rules in Britain. The Germans had a fiscal rule, their fascination with running budget surpluses. Even they had a huge trade surplus. They have fiscal rule that they should run surplus. They shouldn't run budget deficit. And that kind of put them in a straitjacket in times when they should have invested more.

[00:13:37] And now the German economy is also struggling. So that idea of running a surplus is counterproductive, isn't it, in a way? Because when the government spends money, I mean, that money has got to go somewhere, goes into the private economy. I mean, the government doesn't spend money on itself. Whatever they do, if they build a road, then they're employing people to build roads or airports or whatever they're doing with their money, or it's going in welfare payments, whatever they spend their money on, it's going into the private economy.

[00:14:06] It's going into other people's bank accounts. So if they say we're going to spend less, and actually we're going to spend less than we did last year because we're going to have a budget surplus, then they're actually pulling money out of the private economy, aren't they? Government spending and government investment is very important. There is evidence which suggests that it complements the private investment. It gives confidence to the private sector. And government investments, they are usually long terms

[00:14:35] and they have benefits over centuries. I mean, we build infrastructure in Britain and now even private sector is benefiting from that. And then private sector chips in and invests more and that affects the overall aggregate economy. So the idea that the government should run surpluses in its budget and or should not have deficit at all, that is not very helpful.

[00:15:03] And the government debt is as an asset in a reasonable quantity is also very good. Many investors which are more conservative are pension funds. They like to invest in the government bonds because it provides them a consistent, secure value of investment

[00:15:29] and passive income over a period of time. So, I mean, the government debt and the bond market is indeed important. And it's not that it creates financial instability in its sense. It is necessary. It provides kind of bedrock and foundation to global financial stability. Yeah. And Mohamed, that's really my point in this is saying given that, as you say, it provides stability

[00:15:59] and no one really thinks the US government is going to go bust or anything or the German government for that matter, surely at a time which we've been talking about of massive international instability, it should be the place that investment, pension funds are rushing into. They should be queuing up to buy bonds or treasuries or guilt. So why aren't they? Yes. I mean, as I said, one thing is, of course, the policy by the central bank of increasing the interest rate

[00:16:25] and be unwinding the quantitative easing and going for quantitative tightening. And one more factor is also who is holding the government bonds. So far in the case of Britain in, let's say, 1980s, 60% or more of the government debt that was held by the pension funds and insurance funds and insurance companies. So they were more patients.

[00:16:55] But now about one third of it is held by the foreign investors. And a lot of investments are made by the hedge fund and different other investment funds, which are very impatience. And you could say their approach is more short-term. So whenever there is any adverse things happening to public finances,

[00:17:23] even a statement by the chancellor, that could spook the bond market and they would demand higher yield. So it becomes more... The so-called bond vigilantes. Yeah, bond vigilantes. I wasn't sure whether I could use the term or not, but I think that is a... But I mean, that's it. I mean, they are basically making a... They're basically making a judgment, aren't they, to say, yes, we're going to react to the way the market... We're going to drive the market based on how we... Our perception of how

[00:17:53] the government is behaving, really. Yes. They're being the headmaster to the bond market. Yes, indeed. Unfortunately, that has become the case now. So in the absence of where the central banks start doing quantitative tightening, then these players, which are holding the bonds, government bond in large quantity, they could manipulate the market or they could influence the market the way they please. So these bond vigilantes would be the ones who are looking

[00:18:22] and saying, oh, there's a lot of government debt now all over the world. There's just so much of it. So there's so many bonds around. So we are going to react to that by saying, well, we're not going to pay as much for them. And so the price drops, which is why you start seeing yields going up. Yeah. And then as you talk about, if you've got quantitative tightening, that is where central banks start saying, well, the money that we're... The bonds which we're holding, we're going to start selling those off as well, which just adds even more bonds to the market generally. Yeah.

[00:18:51] So is that... So you're saying that the driving force for interest rates is more to do with central banks and their monetary policy, their intention to put interest rates up. Yes. Is that more important than actually just the sheer quantity? Because, you know, it's often given as a reason, isn't it? The reason why yields are rising is because we are just awash with bonds. There's just too many of them and governments are issuing more and more of them and that's the problem. That's the vigilantes argument. Yes.

[00:19:19] I mean, the central bank doing quantitative tightening and increasing the interest rate is a very major factor in increasing the yields on the government bonds. I mean, as I was saying, the Bank of England has sold more than 40% of the bonds it was holding. I think the correct figure is 44% reduction in the portfolio of yields it was holding.

[00:19:47] That is almost selling half of its portfolio of 895 billion. So why are they doing that? Why the rush? Why do that now when there is all this instability? Yeah. I mean, they thought that the normalization, the situation that they were holding large quantity of the government debt was an abnormal situation. They call it unconventional monetary policy when they started, although it wasn't unconventional. The central bank

[00:20:17] do buy and sell bonds, particularly Bank of Japan. Japan been doing since 90s. Another bank have done that. But anyway, they call them it unconventional monetary policy. And when the inflation started to increase after COVID, they, A, increased the interest rate and then B, they started the quantitative tightening program and they call it unwinding of the central bank balance sheet. So not only Bank of England,

[00:20:47] but the Federal Reserve has also sold the U.S. government bond and treasuries in excess of one trillion U.S. dollar. I think their reduction is about 21% or so. And were they doing that because they thought that's going to, by releasing those bonds, that will help yields to go up and therefore maybe they don't need to do quite as much in terms of monetary policy. Yeah. Because, and so it was seen as part of the same policy, wasn't it really? It was sort of like

[00:21:16] a dual action. Yeah, I mean, they've been doing it because when they sell them, then they can move the money out of the economy because they have sold the bond, they got the money back and then there's less supply of money in the economy. So inflation may come down due to that reason. All right. So Mahami, we've talked about the possible reasons behind what seems to be, as you say, an unprecedented crisis in terms of bond yields.

[00:21:46] But what about the consequences of it? Because we've got here in Britain, obviously, a chance that John Healy is trying to work out what headroom he has, if any, to work with. And the sheer cost of government borrowing really affects that, doesn't it? I mean, it limits his capacity to do anything and probably similarly in the US at a certain point. Yes, it leaves almost no room to manoeuvre if John Healy, like his predecessors and elsewhere. They are sticking

[00:22:14] to the fiscal rules, which are not rule of physics, to be honest. I mean, I'm an economist, we talk about rules, but these rules are man-made rules. They are not rules of physics or science, which you can't defy them. Well, money is man-made. You start there, everything has to be man-made beyond that. Yeah, yeah, indeed. So, yeah, you are absolutely right. I mean, with increasing yields, now the interest on the government debt, US is paying

[00:22:44] around 1.3 trillion and we are expecting to pay in the current financial year in excess of 130 billion pounds. Now, that is more than what we would be spending on education. Okay, so after the social security health, the interest is the largest expenditure in UK. So, if government is spending

[00:23:13] well over 100 billion pounds on servicing the debt in the farm interest, that means that 100 billion can't be spent on infrastructure, on education or elsewhere in the economy. So, yeah, that is a fact. This is a big cost to the exchequer. In the UK, more than 10% of our total budget and in the case of UK,

[00:23:43] that is about 15% or more of the American government's total expenditure just on servicing the debt. So, indeed, that is a big cost. But modern monetary theorists, as you probably know, I'm sure very well, would say, well, hang on, we don't need to worry about this. You know, as you said, the rules, the fiscal rules are just that, things we've created. Actually, we can just keep spending,

[00:24:12] keep helping people and get on with it and actually we'll be fine because in the end, governments will always be able to borrow if they need to. No, I am afraid I don't agree to the modern monetary theory. Other people, they've been critical of that, but I don't subscribe to that view of the world and that theory. I think there are limits. It is important that, as I said earlier, the government debt and

[00:24:41] government bonds are very important instruments. There's no doubt about that. But beside that, there need to be moderation, there need to be fiscal responsibility and excess of anything is bad. So, too much debt, if the government borrows too much and like spends too much, that could be inflationary and a point comes where instead of complimenting

[00:25:12] the public, the private investment, it starts crowding out the private investment. So, there are limits to the government debt. It could be inflationary and, of course, in order to finance your spending, either you borrow money which you got to pay back in the future or you tax. Either way, it would have implications. So, yeah,

[00:25:41] there's no bottomless pocket or kitty the government has. There are limits. No magic money tree, as one former prime minister. But, but, I mean, if the government was to say, well, you know what, we're going to cover all of that excess spending costs, the cost of borrowing by issuing more bonds, then you'd have a bigger deficit and the bond vigilantes would just go crazy on all of that, obviously. Which is a problem, isn't it, in a way,

[00:26:11] because I feel like the government should be able to say, well, okay, we're not going to go crazy on spending, but short term we do have an issue because the cost of borrowing is huge and we're in a difficult situation because the economy could tank as a result of that, and we need, somebody's got to take responsibility for that. So we could spend the money right now, but it's a short term path, but they can't do that short, you know, and we'll fix it in years to come. They can't do that because, first of all, no one's going to believe them, and secondly, even if they tried to do

[00:26:40] that, the bond markets would go crazy as a result of it. So we are getting driven by investors rather than the people we elect to govern us, aren't we? Yes, that is true. I think in that situation what the government could perhaps do is they could be open and transparent if they have long term projects, which are investment projects, which are not consumption focused.

[00:27:10] Now at the moment, government is spending very little of its overall expenditure actually on investment. on the day-to-day expenditure and day-to-day spending needs, it's not investing a lot, but if the government has long term investment projects, which will deliver positive return, so then there is a lot of liquidity in

[00:27:40] the global financial market, and if there are viable projects, the investors would be interested in that, and then I'm sure they would be confident if the governments put forward a confident solid investment plan, then it could indeed borrow more. But it sounds like you're also saying, though, that if we accept the fact that inflation is largely being driven by supply constraints,

[00:28:09] as it was during COVID, of course, exactly the same problem but for different reasons, that if central banks accepted that and didn't push for higher interest rates, then bond yields would come down, therefore the cost of borrowing for the government would come down, therefore they would have more money to spend. So is it literally just a question of central banks are making the wrong decision here? Well, I mean, the central banks, they are independent. In the case of UK, Bank of England had been given independence, so they

[00:28:39] have their remit and they have their objective and they have their view of the world. The head of the Fed, the Federal Reserve, Kevin Walsh, is now doing exactly what Donald Trump doesn't want him to do, even though he's Donald Trump's man in there. Yes, I mean, he's a new chair, so Donald Trump will get along with the previous chair also, he I think appointed him and this one is also appointed by him, but well, let's see, I think it's very easy

[00:29:08] to follow with Mr. Trump. I don't know anybody who could be his friend for too long, I think. Yeah. But if we took the issue that the central banks did not push up interest rates, as you say, they can because they're independent, they do what they think is right, but if they thought that well, okay, this is, you know, if they read your article and they say, okay, well, this is driven by supply constraints, and so we're not going to make too much difference, what would bring inflation down? Because I mean, inflation is

[00:29:38] obviously the issue everyone is concerned about. The only way you can bring it down, if it's driven by fuel, is create less demand for fuel, and that means a slower economy, doesn't it? There's no other way of looking at it. Yeah, another way of looking at it is by addressing the supply issues. I mean, if there are geopolitical conflicts, that is a political problem, but politics and economy, they are closely knitted. Similarly, if there's a war in Europe, which is causing the fuel,

[00:30:09] not only fuel, but also the problems around grains and food and gas, natural gas. So then there's a problem which would need a political solution. That is one side. After COVID, there was also issues around global supply chains which were not to do with the war in Europe, but also do with the supply chain bottlenecks. Because what happened during the COVID, a lot of

[00:30:38] supply capacity was damaged. A lot of factories, they reduced their production, they fired their staff, there was a lot of uncertainty. But after some time, as we came out of COVID and lockdowns, the economy started to function again and they started to increase their supply. So supply caught up with the demand, global demand. So we could have let it run its course and

[00:31:07] supply would have caught up with the demand and that would have started the problem. So inflation would have come down anyway due to those channels. I think the central bank would have been patience at that point. I'm talking of end of 2021 and 2022. Again, I've written on that and the writings are available online. So I think there could be patience there and then we would have

[00:31:37] the consumers and the firms in Britain and other countries wouldn't have to face the pain in terms of an increase in the mortgage payment and trust payment. They did. And it would have been that the yields would have been lower on the government bonds due to the increase in the interest rate and stopping the quantitative easing. So that would have been what should have happened. From where we are

[00:32:07] at the moment, Mohamed, if you were John Healy or Scott Besant, I suppose for that matter, looking at this and saying, the payments on my debt are vastly increasing to an almost unsustainable extent. I can't control the central bank that seems to have the tools you're talking about. They are independent. The only lever I have from what you say is to promise long-term investments for growth, essentially, and to be believed by the bond

[00:32:37] vigilantes that that's what I'm actually doing. That's one thing. And another thing on the fiscal rule, we could be, I think we shouldn't tie up our hands, we could be flexible and at the same time transparent. So you could borrow to invest in the projects which you think are very much needed. I mean, the infrastructure in Britain needs investment. HS2 seems

[00:33:07] to be not going anywhere and many other infrastructure projects that need investment. Areas like green energy, green tech, AI, these areas need investment. So I think I would, my suggestion would be to increase your expenditure on the investment. I think the government probably invests less than 10% of its total expenditure. Majority of

[00:33:37] the expenditure is on the social protection, health, and now servicing the debt. That makes more than 60% of your total expenditure. infrastructure. And so my suggestion would be invest more in infrastructure in the long-term projects. And if there are some savings could be made on the social security side or making the delivery of the health service

[00:34:06] more efficient, public sector, if we can get some efficiencies by not decreasing the pay, but whether there could be that you can expect and ask for increase in the productivity or changes in the working hours by the employees on slightly higher salary, but maybe a bit more increase in the hours worked, that could probably

[00:34:37] reduce the per hour cost of hiring a public sector worker. So do you think all of that could be an example, do you think also if you are there saying, well okay, we need to invest in infrastructure projects, then obviously those infrastructure projects are going to employ people as well, which hopefully would bring down your welfare bill because more people will be employed. So do you think in effect, I mean this government did sort of start out, didn't they, when Labour took control, saying that

[00:35:07] they basically wanted to do this, they wanted to invest, they thought they should loosen the fiscal rules so that sort of investment should almost be treated as an off-budget item, so they could balance the budget and work beyond that on these long-term investments. So it sounds like that's not happening a great deal. indeed, I mean that's somewhere I think they need to do better and they need to do more. And also on the revenue side, I mean they don't only have these fiscal rules like

[00:35:36] the stability rules where they said that they will not borrow to fund the day-to-day spending or they have investment rule where the debt as a share of GDP will fall by the end of the parliament. But on the revenue side, they also said that they made pledges that we won't increase the income test or we won't increase the national insurance contributions.

[00:36:06] So I think those pledges on the taxation side, they need to revisit. I'm not saying to increase the tax because I am already paying a very high rate of tax but what I'm saying is that you should not tie up your hands and close all your options and then you say, okay, well, then it becomes very predictable. Anything you will do because you don't have much room to maneuver. So if there is a need to increase

[00:36:36] taxation in certain area, then we should be able to look at it. We should not make pledges that, okay, we would not do it whatsoever. I think in economics, as I said, the rule really do not work like rules of physics. So it is very important to provide clear communication but then binding yourself with these pledges that doesn't leave you with any room to maneuver or make any

[00:37:05] fiscal policy which could be innovative. And therefore, we see from one chancellor to the next chancellor there is kind of continuity. We don't really see much change. And that would assist in trying to convince the bond people, which is what we've been talking about for the last half an hour. So I have just a sort of closing thought. Do you think that yields are going to come down any time soon? Do you see any of the kind of

[00:38:25] I think they need a solution, whichever way they are resolved. But in Europe, Russia, Ukraine issue or whether it is Iran, US and others in the Middle East, they need resolve. I think once that issue is resolved, the oil prices, they will come down significantly.

[00:38:46] And I think that would be a major factor in reducing. And that will also reduce the cost of food because oil is a major driver of increase in the food prices. And fertilizer.

[00:39:01] Yeah, it increases the cost of fertilizers and also the delivery of the food and harvesting and everything. So that will definitely reduce the inflation and that will give hopefully central banks confidence to reduce the interest rates and also reduce the uncertainty in the global economy and financial markets, which would then help reducing the yields on the bonds.

[00:39:28] It's a long chain of circumstances. And of course, much of that is not in the hands of central bank governors or treasury secretaries. So if we could just go back in time and say Donald Trump and Vladimir Putin were never born, how different the world would be right now? There's a movie in there somewhere, I think. Maybe. A fantasy, alas. A fantasy. Absolutely. But yeah, I mean, I hope if that's the case, we may not have these wars going on.

[00:39:57] The world might be a better place with the peace, global peace. And yeah, maybe some of these things might have not happened. We would have known, but yeah. We are where we are. Global peace and cheaper housing loans. That's what we wish for. Yes, we are where we are. And Mohamed, thanks for putting us there. Really good to talk to you. Thank you for enlightening us, even if you haven't cheered us up.

[00:40:23] I'm sorry. Usually the economists, they are not very cheerful people. No, they don't get invited to parties today. Good to talk, Mohamed. We'll talk again soon. Thank you very much. Pleasure is mine. Thank you. So in a nutshell, the world's gone crazy in terms of economics. And the reason it's gone crazy in terms of economics is because it's gone crazy in terms of wars. And in particular, obviously, that war that's still raging in the Middle East, for which there is no answer, it seems. It seems. It seems. I mean, the problem, I mean, to put it as most basic,

[00:40:51] the energy that comes from that part of the world that we all consume is finding it much harder to get out. Obviously, we know about the Strait of Hormuz and all that. But now, of course, the group called the Houthis in Yemen have tried to close, at least partially, the Bab al-Manda, which is a straight out of the Red Sea, which means that the other way of getting energy out is difficult. Plus, they've also attacked the pipeline that Saudi Arabia was using to bring it to the Red Sea. So the upshot of all this is that it's much more difficult to get stuff.

[00:41:19] Yes, exactly. And the Saudis had to close that pipeline and then thought, OK, we'll try a look with the Strait of Hormuz, which is obviously not being... And obviously, there's a lot of truth that just disappears in all of this, because the United States, the spokespeople, the energy spokesperson there is saying, well, you know, we're sort of like almost three quarters of the way back to where we were before. That is clearly nonsense. Yeah, right. It's absolutely nonsense. Unlike anything else that comes out of the White House. Yeah, everything else, I believe.

[00:41:45] But you do wonder what will happen to all the Gulf states through all of this. If this is a prolonged war, then we all have to suffer with less energy from that part of the world. What do they do? Because obviously, this is their bread and butter. How do they survive if they can't export oil? It's a massive, massive problem. And I think it is, you know, as ever centring on the Middle East. But what we thought we'd do is let's have a look at what is there, what's happening, what's happening with the war with Iran. I mean, that kind of slightly on the back burner, but a lot of threats coming through.

[00:42:16] What are the consequences going to be? And are there any off-ramps? Because that seems to be the biggest problem of all. Well, I think the big off-ramp will be a midterms that Donald Trump loses. I wonder how much Iran is just hanging on for that. And then they negotiate some sort of peace. I don't know. Anyway, we'll explore it from every angle next week on The Why? Curve. Join us for that. We'll see you then. The Y Curve.