The Old Normal with Daleep Singh

Episode Summary

Executive Summary: In this episode, Mark Zandy and Marissa Di Natale host Dilip Singh, Vice Chair and Chief Global Economist at PGIM. Singh shares his career journey from public service (Treasury, New York Fed, National Security Council) to the private sector. The conversation covers systemic risks in non-bank finance (crypto, private credit), the move away from post-Cold War unipolar order, and the return to an 'old normal' with higher inflation, risk premia, and interest rates. Singh discusses the potential for economic overheating in the next 12 months, the threat to Fed independence, and the need for new rules on economic statecraft and industrial policy. He balances this with optimism about platform technologies (AI, quantum, synthetic biology) that could boost productivity. The baseline is a 'muddle through' economy, but with fat tails on both sides.

Main Topics: Systemic Risk in Non-Bank Finance (Priority: 5/5): Discussion of how risk has moved from regulated banks to opaque non-bank entities like crypto and private credit, and the associated systemic vulnerabilities. Structural Shift in Geopolitical and Macroeconomic Regime (Priority: 5/5): Singh outlines the end of the post-Cold War unipolar order and a return to an 'old normal' with higher inflation, risk premia, and interest rates due to fragmentation and new policies. Near-Term Risks: Overheating vs. Recession and Fed Independence (Priority: 4/5): Singh warns of potential economic overheating due to a dovish Fed, loose fiscal policy, and other factors, and discusses threats to Fed independence. Tariffs, Industrial Policy, and Economic Statecraft (Priority: 4/5): Singh critiques tariffs as a tool rather than a strategy and advocates for a broader framework of public investment, alliances, and targeted tariffs. Transformative Potential of General-Purpose Technologies (Priority: 4/5): Discussion of platform technologies (AI, quantum, synthetic biology, fusion) as a potential upside that could drive productivity growth above 3%. Historical Echoes and Need for New Rules (Priority: 3/5): Drawing historical parallels to the late 1800s/early 1900s to highlight risks of nationalism and calls for new international rules on economic weaponry and industrial policy. Investment Implications in a Fat-Tailed World (Priority: 3/5): Singh presents a 'muddle through' base case but emphasizes fat tails and recommends scenario-based investing, including front-end fixed income, steepeners, and real assets.

Key Arguments: Systemic risk has shifted from banks to non-bank entities (crypto, private credit) that are 'too small to see', and regulatory rollback may increase vulnerability. The post-Cold War 'great moderation' is over; we are returning to an 'old normal' of higher trend inflation, higher risk premia, and higher equilibrium interest rates. In the next 12 months, the risk is more of economic overheating than recession, potentially driven by a dovish Fed, loose fiscal policy, tariff pass-through, and AI capex. Fed independence is under threat through personnel choice, Supreme Court rulings on firing Fed officials, and legislative changes (e.g., adopting a Bank of England-style model). Tariffs should be a tool within a broader strategy involving public investment and alliances, not a standalone policy. Geopolitical fragmentation and political disruption could hinder the adoption of transformative general-purpose technologies (AI, quantum, synthetic biology, fusion). The current era echoes the late 1800s/early 1900s: globalization and technological change create wealth concentration and inequality, fueling nationalism and geopolitical rivalry. New 'Geneva Conventions' are needed for economic weaponry (sanctions, tariffs) and industrial policy to prevent a race to the bottom.

Data Points: Assets Under Management: 1.5 trillion - PGIM assets under management Percentage of PGIM Capital from Prudential: about a third - PGIM's capital from Prudential Increase in Sanctions: 10x - Growth in sanctions worldwide this century Increase in Tariffs: quintupled - Growth in tariffs in last 5 years Screening Percentage: 90% - Percentage of advanced economies screening sensitive tech investments Historical Screening Percentage: a third - Screening percentage a decade ago Increase in Industrial Policy: 8x - Increase in industrial policy interventions Potential Inflation Rate: up to 4% - Potential inflation acceleration under dovish Fed and loose fiscal Current Sticky Inflation: just below 3% - Current inflation level mentioned Amendments to Federal Reserve Act: over 200 - Number of amendments to the Federal Reserve Act since 1913 Productivity Growth Rate: above 3% - Potential productivity payoff like late 1990s Historical Period: late 1800s and early 1900s - Years of the late 1800s/early 1900s era referenced Year: 1864 - First Geneva Convention year Year: 1949 - Year of the last major Geneva Convention

Pivotal Quotes: "we've transformed too big to fail to too small to see." — Dilip Singh: After discussing the shift of risk from banks to non-bank entities. "because today's great powers are mostly nuclear powers, the risk of mutually assured destruction is shifting, it's channeling direct conflict away from the battlefield and into the arena of economics" — Dilip Singh: Singh explains why geopolitical conflict is channeled into economics. "I mean, when you think about technologies like artificial general intelligence, but also quantum computing, synthetic biology, nuclear fusion, there are a number of what are called general platform technologies that are on the cusp of reaching commercial scale over the next decade, let's say. And they're not just tools for doing one thing..." — Dilip Singh: Singh describes the potential of general-purpose technologies, contrasting them with niche innovations.

Implications: Listeners should expect a more volatile macro environment with higher inflation and interest rates, requiring scenario-based investing. Fed independence faces threats. Geopolitical fragmentation and technology adoption will shape outcomes. Opportunities exist in fixed income front-end, steepeners, and real assets tied to economic/national security.