Interesting time and we just had jackson paul and had secondquarter gdp numbers looking better and that is great but, of course, from the human and social perspective its an unfortunate time in our sympathies and prayers go with those in houston for Hurricane Harvey in the terrible damage that was listed there. Im sure your comments about some of that later on of the street into it. We will talk about the us economy and then i will migrate into the Global Economy and then Monetary Policy. Lets talk probably about us economy and where do we stand and what is the outlook for the next threefive years. The First Quarter gdp was one point to percent in the Second Quarter was about 3 in our own forecasted in dallas was for the year 2017 the us economy should grow approximately two and a quarter percent. Not great by historical standards but certainly sufficient in our view to further take slack out of the labor market and likely drive down the other rings and other measures of employment slack. We can talk about there are a number of reasons why the growth is more sluggish now than it was ten years ago, 15 years ago and that the number one reason is aging demographics in the United States. Biggest headwinds for Economic Growth in the country is the fact that our population is aging and workers are aging out of the workforce. A lot has been made of the fact that the Labor Participation rate of 2007 was about 66 and today at 63 . Our Research Suggests that the bulk of that is demographic and it gets worse over the next ten years. We think the Participation Rate will go below 61 . So, there are a number of big secular trends but to me that is the most significant. The fact that almost every advanced economy in the world and it helps explain why gdp growth sluggish. There are a number of things we can do to deal with this demographic issue and the things that you mind are getting more women into the workforce although thats pretty much plateaued, improving skills training, it to close the skills gap there are many more skills job opening the supply of workers so middle skills training and other skills training is key and yes, immigration is a key part of this. Immigrants and their children made up over half their workforce over the last 20 years and the reality is two things drive gdp growth in the workforce and growth in productivity. We will talk more about productivity issue but if we dont grow in the workforce it will be very hard to grow gdp. We spent a lot of time doing work on that and talking about the fact that as controversial as it is, immigration is a central, distinctive evidence of the United States and is one of the reasons we been able to grow for many decades. My grandparents were not born here and it may be true of many of you here, too. That is the outlook for the us economy. I think we are in a 2 growth economy and i would love to tell you over the next five years it will go like this but the demographic trends are actually inside. We can grow higher but the potential gdp is likely to drift lower, not higher. Let me stop there. You mentioned the demographic issue and often refer to for secular trends demographics, gdp, globalization, Technology Disruption and the last to get confused so can you talk about that a little . The first is aging demographics and that the big driver of gdp. Okay. The second big driver of gdp which shouldnt surprise you is globalization. Globalization has taken a lot of different forms over my lifetime and it used to be a lot of industries got offshore and we lost jobs et cetera and that is very true. Today globalization is the character of it is changed dramatically. Let me give you an example. The trade deficit that we run with mexico theres been a lot of discussion about this as you know is an intermediate goods trade deficit today did our research showed that 70 of the goods we import in the dates for mexico are intermediate goods. What does that mean that market means that the goods go back and forth across the border. These are trade partnerships and logistics between manufacturing and other companies here in mexico that have allowed those us companies to remain more competitive and build jobs in the United States. By the way, in contrast most of our deficit with china is a final deficit which is very different and back to globalization. With globalization yesterday we used to think it made the shoe industry moved offshore is today more likely in the integrated supply chain and logistics that allow countries in this hemisphere to keep jobs and keep them from going to asia so its a big driver and its misunderstood, in particular, it gets confused sometimes with technology enable disruption which is a much more powerful driver today and i think much more likely explains many job losses in the industry today than does globalization. We have attributed many job losses here and must be trade or immigration but more likely job losses today have nothing to do with either and they are much more to do with the fact that amazon versus retail and every other industry disruptive competitors and usually Technology Enabled able to drive down costs, improve options for consumers, and tend to have the effect of limiting price power of businesses today and most likely if you have a High School Education or less who are much more likely to be vulnerable than being squeezed out of your job and because skills training is not beefedup enough in this country and were not set up for it you are barely likely the next job you take will be in a job that is much lower paying job. If you have a College Education and are much more able to deal with technology and disruption and as dear commission, we are confusing the two and why does it matter . If we attribute job losses to globalization that are in fact coming as a result of technology enable disruption than our policy prescriptions are also going to be misguided. I think were at this stage in our history for all the pain and adjustments we are now at the point where we are possibly globalization is, in fact, an opportunity for greater growth. Many of these losses are trivially to Technology Disruption requires much more skills training than other policy prescriptions. Its very critical when it comes to trade, immigration, skills training, Infrastructure Spending that we get this diagnosis right because if we get it wrong or it is confused we will make decisions that will actually cause us to grow slower, more slowly. Right now, left from it, a lot of small towns in texas have a lot of them, 150,000, 200,000, 250,000 are losing population they are struggling. One is cultural because the kids dont want to stay in his counsel he wants to houston, dallas, new york, la or Something Else for the second issue is we are in a war for people in this country because of aging population. Cities are actually warring with each other to attract people. Texas, by the way, is winning the war. We are. We are attracting people but the problem is many other states are rattling them off it are losing people. I think thats making this world versus city issue worse because we are lacking population. The diagnosis of these issues and is a big part of what we do at the dallas is to get the diagnosis right to inform policymakers so we make a decision from a policy point of view. My concern now is we may be confusing the diagnosis of what is going on. Talk about the debt situation a little bit as well. Theres a debate going on about whether we should raise the debt ceiling and whether we do or we dont put the fact of the matter is we have a lot of debt and especially when you factor in the unfunded future entitlements are estimated at 46 trillion, so, what changes. The reason i call this the end of the debt supercycle and what do i mean by that . Whether we are conscious or not there was my lifetime im getting older and a lot older than most of my lifetime, in this country, when we had a downturn or economic weakness we increased our debt, the gdp often stimulates for growth. We did call it decreasing debt but we call the tax cutting Government Spending and other things but ineffective we leveraged up to stimulate more growth. As derek just said, we are at the end of the robe here with public debt of the government about 70 parsecs percentage of the gdp we just said 46 trillion is not a surprise and yes there is polarization in dc and theres more partisan in all of that but theres one other thing going on and its not a surprise that we havent seen the fiscal policy and about eight years, basically. Its because youre highly leveraged and people in dc know it and the capacity and you are seeing it play out on healthcare and tax form and why is it so hard and what is one of the issues is we are highly leveraged and they are aware of it we dont have room to increase debt to gdp further. This is why this is been military policy in the last eight years, not just in the United States but in the western world. You would think i would be fun of Monetary Policy but there theres by the way, its Interest Rates and use of our Balance Sheet. It is not structural reform and what is an example of an extraction of reform, skills training, immigration policy and Infrastructure Spending would be an example of structural reform and fiscal policy. We are at the stage of our development where Monetary Policy alone will not be able to do the trick but where high leverage and the challenge of the country is how do you make other fiscal policy and other Structural Reforms so we can grow greater because Monetary Policy alone has a role to play that it alone cant deal with some of these big secular drivers that we just talked about. So, i think its a good person for baker to say that. We have an Important Role to play but we need broader policy after the eight years after the crisis it is time for broader Economic Policy and if we are going to grow faster so why so critical back to the debt because what is so bad about 2 and the Unemployment Rate is low and it wouldnt be a problem if it wasnt so highly leveraged. Nominal gdp people in the audience what services . Income. You needed to service debt. Gdp is our pretax income and if youre going to grow slowly will get more leverage. Particularly as we age. I think we have to find ways to grow faster or likely both to restructure the debt. That is the big challenge we face. I guess the good news is just try to cheer you up. [laughter] [inaudible conversations] the good news is 2007 household sector was historically highly leveraged. The debt to gdp was historically high and the reason we didnt notice it was because most of us didnt notice it that much was because debt to asset values was totally reasonable but asset values were high. The last eight years weve gone through a painful eight or years with household sector has slowly leveraged not by reducing debt that much but incomes have grown and they have increased debt and other household sector is a pretty decent shape from a Balance Sheet point of view. That is why im pretty confident while 2 in two and a quarter might not be what we hope for im pretty confident that theres a good underpinning to our gdp growth. The trick is now that is great and how to be grow faster. What about the stock market . There is a Federal Reserve bank that you cant speculate on the spot stock market but its looking good. Are we at it higher or are we facing an impending crash . We were joking around or in my previous career i was very free to comment on the stock market and i did for many years but in this job, not so much. [laughter] here is what i would say. I make a few observations. It occurs to me and i will say some antiseptic things here. The difference what happened in the markets we went from rates are low but they will probably go up to rates are low and i wonder when they will go up to rates are low and they will stay low. Okay . As you know they are based on expectations of rates and the reality is why are rates so low and why does the tenure the number one drivers of the ten year treasury and one is perspective gdp growth expectations of future gdp growth is the primary driver of the tenure treasure and the secretary driver is, by the way, local liquidity in the its been created by Central Banks within the fed which is why i believe strongly was a brief reducing our Balance Sheet as soon as we can. I actually think the main reason for the tenure is perspective future growth within the week. If that is the case in the market got this will stay lower longer. As a central banker, i dont worry as much as people might think about elevated evaluations. I think a correction in fact could be a healthy thing, historical corrections alone dont necessarily mean create a Systemic Risk but with that elevated evaluation you have a elevated level of debt. Yet very healthy real estate values and maybe we have way too much leverage associate to finance it. That is why the feds have had tough and weve had very had tough Macro Financial policies particularly big banks and over the last years have been tamping down commercial real estate exposure is percentage of their total cat. I personally think there needs to be regulatory relief for small banks and this is a little off the stock market but i think for big banks we have been very well served by very tough macro policies. That alone you can argue whether high or low and make your own judgments but that is the part that worries me is excess debt building up alongside it. Right now if we just took a snapshot is still manageable but i think it is very not the kind to be weakening macro policies especially for the big banks. I think we should be giving regulatory relief to small things. I feel that strongly. I think high evaluation and good macro provincial policies go together and if we learned anything from 20072008, we had healthy evaluations, low rates and relatively loose regulatory policies and we paid a big price for it and i dont think we should make the mistake. Monitoring the code is a critical yeah, well, ive watched the elder for many years and the reason i look at the yield curve is for many reasons. At the fed, we talked about this. Then we go to asia and asia is a source of growth for the world, a better demographics, better gdp accept the biggest part of asia is china. I used to live in asia and i iran the business for my firm in asia and china is the character has changed dramatically in the last 25 years. It is dramatically bigger and the way its grown it will grow this year approximately it will grow about six and a half gdp. I couldve told you that success ago and i can tell you six months from now and the reason is the way they do it they talk or target gdp level and use that increase their own debt to gdp, neither Infrastructure Spending or in spending on state owned enterprises to fill the gap. They basically doubled their gdp in china unlikely to be sustainable and so when i look at Global Growth it is better and that is good news except part of thats being better is China Growing 6. 5, 6. 7 and im pretty confident that ultimately the world will have to get used to China Growing more slowly and they wont be able to keep using increasing debt to gdp to simulate gdp growth and will have to get used to their gdp slowing down and they are now a big percentage of Global Growth. The good news is for lots of reasons i think emerging markets are more stable and i think Global Growth picture looks better, except we should just get control with the idea that part of that Global Growth is china and i think its likely chinas growth will need to drift lower because they will need to stop increasing debt to gdp to achieve it. Better Global Growth is a tale went to the United States and helps us grow more. I think, again, globalization is a source of opportunity for the United States, not a threat. I think that probably one of the keys to the future of the United States is even doing more to integrate and our countries are doing this. Its for the country to integrate more with the rest of the world in a sensible way so that we can grow faster. You made a big point about do you see a threat from growing protections to the Global Economy. It is a concern so driving two points is obviously, hes worried about protection because again he sees the same problems i just talked about, aging demographics high levels of Government Debt to gdp and turning inward and closing up is probably going to mean we will grow more slowly at a time when because of our demographic we will grow more slowly anyhow and i think what i believe is we need to make smart tray decisions and we need to make smart immigration decisions and i think these two policy areas are sources of opportunities for the United States. It will have greater growth even though the National Debate the characterized as more of a threat and i actually think that is not the case and i think that the job