THE POST-CRISIS GLOBAL ECONOMY JANUARY 13, 2010 THE POST-CRISIS GLOBAL ECONOMY By Jeffrey E. Garten Yale School of Management

PRESENTATION LAST YEAR DESCRIBED GLOBAL ECONOMY IN SYNCHRONIZED FREE FALL ECONOMIC GROWTH CONTRACTING EVERYWHERE MANUFACTURING, TRADE, INVESTMENT, WORSENING CREDIT CONDITIONS MULTIPLE GOVERNMENT INTERVENTIONS AROUND WORLD

PRESENTATION ONE YEAR LATER MORE STABLE, AT LEAST NUMBER OF ENCOURAGING TRENDS WORLD MUCH MORE DISAGGREGATED STILL BIG UNCERTAINTIES STILL BIG UNRESOLVED PROBLEMS

POINTS TO COVER OVERALL CONTEXT REPORT CARD ON ACTIONS TO DATE ALTERNATIVE RECOVERY SCENARIOS CHALLENGES AHEAD

OVERALL CONTEXT THE GREAT MODERATION – (1995-2007) THE GREAT CREDIT CRISIS – (2007-2009) THE GREAT RECESSION – (2008-2009) THE GREAT STABILIZATION – (2009) THE GREAT .… UNCERTAINTY? – (2010-2012) THE GREAT STRUCTURAL CHANGE – (2010-2015)

OVERALL CONTEXT SIX OBSERVATIONS THE GREAT MODERATION WAS PARTLY AN ILLUSION OF SOLID ECONOMIC FOUNDATIONS THE GREAT CREDIT CRISIS BEGAN IN THE 1990s, NOT 2007 THE GREAT RECESSION ISN’T OVER FOR EVERYONE. CHANCE OF DOUBLE DIP

OVERALL CONTEXT SIX OBSERVATIONS THE GREAT STABILIZATION COULD CONTAIN THE SEEDS OF ANOTHER CRISIS THE GREAT UNCERTAINTY RESULTS FROM THE IMPOSSIBILITY OF A RETURN TO STATUS QUO; BIG QUESTIONS ABOUT REGULATION ;AND SHAKEY GROWTH FUNDAMENTALS THE GREAT STRUCTURAL CHANGES RELATE TO THE SHIFT TO ASIA AND THE ADVENT OF A LOW DOLLAR WORLD

REPORT CARD ON ACTIONS TO DATE RESCUE A REGULATION I [D?] REFORM OF MARKETS I [C?] REBALANCING D RECOVERY C+/B

REPORT CARD – BIG QUESTIONS IN THE END HOW MUCH WILL HAVE CHANGED ON WALL STREET AND IN WASHINGTON? IS IT POSSIBLE THAT THE GROUNDWORK HAS BEEN LAID FOR AN EVEN BIGGER CRISIS?

ALTERNATIVE RECOVERY SCENARIOS 2010 - 2012 V U W L J

ALTERNATIVE RECOVERY SCENARIOS OBSERVATIONS ANY KIND OF RECOVERY WILL LEAVE DEEP SCARS RECOVERY GREATLY SKEWED TOWARDS EMERGING MARKETS NUANCES OF “DECOUPLING” THEORY HOTLY DEBATED MULTI-SPEED WORLD A HUGE COMPLICATION

CHALLENGES AHEAD GENERAL OBSERVATIONS THERE ARE MANY THINGS WE JUST DON’T KNOW. CAUSE FOR HUMILITY HOW BIG IS TOO BIG FOR GLOBAL FINANCIAL INSTITUTIONS HOW TO DEAL WITH ASSET BUBBLES? WHO IS BEST SYSTEMIC REGULATOR ON NATIONAL AND GLOBAL SCALE?

CHALLENGES AHEAD SHORT TO MEDIUM-TERM EXIT STRATEGIES IN GLOBAL CONTEXT NATIONAL REGULATION* GLOBAL REGULATION* TRADE AND FINANCIAL IMBALANCES ___________________ *A major change in social contract between state and banking?

CHALLENGES AHEAD MEDIUM TO LONG-TERM SHIFT OF ECONOMIC GRAVITY TO ASIA LONG-TERM DECLINE OF DOLLAR STRONG HEADWINDS FOR AN OPEN WORLD ECONOMY

SHIFT OF ECONOMIC GRAVITY TO ASIA AND OTHER EMERGING MARKETS ECONOMIC GROWTH AND DYNAMISM INTRA REGIONAL TRADE LOCATION OF FINANCE AND INDUSTRY ECONOMIC AND SOCIAL PHILOSOPHY POLITICAL CLOUT POTENTIAL CRISES

LONG-TERM DECLINE OF U.S. DOLLAR SIX REASONS SOARING DEBT AND INFLATIONARY TEMPTATION FISCAL NIGHTMARE AND BROKEN POLITICAL SYSTEM NEED TO REVIVE MANUFACTURING AND “PRODUCTION ECONOMY” AND CHEAP DOLLAR EASIEST ALTERNATIVE

LONG-TERM DECLINE OF U.S. DOLLAR LIKELY PERCEPTIONS AND BEHAVIOR OF FOREIGN INVESTORS WHO WILL WANT TO DIVERSIFY MORE TRADE SETTLED IN OTHER CURRENCIES NOT “WHETHER” BUT “WHEN”, SO NEED TO PREPARE

A LESS OPEN WORLD ECONOMY END OF A 30-YEAR ERA OF DEREGULATION, IN FINANCE AND ELSEWHERE STEADY REGULATORY INTERVENTIONS ON HORIZON, IN FINANCE, ENVIRONMENT, TRAVEL, FOOD PUBLIC SUPPORT FOR FINANCIAL INDUSTRY AND BUSINESS SERIOUSLY ERODING OPEN TRADING SYSTEM OVERWHELMED INFLUENCE OF EMERGING MARKETS, INWARD EU, OVERSTRETCHED AND INWARD U.S.

CONCLUSIONS WORST AVOIDED BIG UNCERTAINTIES LOOM BUT NO RETURNING TO WHAT WE KNEW PAST 30 YEARS

THE POST-CRISIS GLOBAL ECONOMY JANUARY 13, 2010 THE POST-CRISIS GLOBAL ECONOMY By Jeffrey E. Garten Yale School of Management