THE ECONOMIC & FINANCIAL MARKET OUTLOOK INTO 2008: The U.S. And Asia In The “New” Pacific Rim Economy A Presentation To The Asia/Pacific Business Outlook 2007 Los Angeles, California March 27, 2007 THE ECONOMIC & FINANCIAL MARKET OUTLOOK INTO 2008: The U.S. And Asia In The “New” Pacific Rim Economy A Presentation To The Asia/Pacific Business Outlook 2007 Los Angeles, California March 27, 2007

ASIA AND THE GLOBAL ECONOMY * Still The Global Economy’s Star Performer: --Economic Growth Of 7.2% A Year In Vs. 5.7% In All Emerging Markets, 3.9% Globally --Economic Growth Of 7.2% A Year In Vs. 5.7% In All Emerging Markets, 3.9% Globally * A Growing Presence In The Global Economy --Asia’s Share Of World Output At 28% In 2005 Vs. 23% In 1996, 18% In 1990; Increased Role Of Domestic Spending --Asia’s Share Of World Output At 28% In 2005 Vs. 23% In 1996, 18% In 1990; Increased Role Of Domestic Spending * Asia As An Increasingly Important Export Growth Engine For The U.S. --16% Of U.S. Exports, But Over 25% Of Our Past Year’s Export Growth --16% Of U.S. Exports, But Over 25% Of Our Past Year’s Export Growth

ASIA'S IMPORTANCE IN DOLLAR "RECYCLING" Source: International Monetary Fund Other 43% Oil Exporters 26% Singapore 3% China 14% Japan 14% U.S. 65% Other 35% MAJOR NET CAPITAL EXPORTERS, 2005 Percent Of Total MAJOR NET CAPITAL IMPORTERS, 2005 Percent Of Total

CURRENCY DIVERSIFICATION OF INTERNATIONAL RESERVES MORE EVOLUTIONARY THAN REVOLUTIONARY * The Dollar Still The Dominant “Key Currency” In World Trade And Finance --Diminishes With U.S. Output Share, Euro Acceptance --Diminishes With U.S. Output Share, Euro Acceptance * Potential Losses To Central-Bank Investment Portfolios From An Abrupt Move Out Of The Dollar --Implications For Exchange Rates, Trade Patterns --Implications For Exchange Rates, Trade Patterns * Asset (Vs Currency) Diversification Potentially More Significant

MOVE TOWARD NON-DOLLAR RESERVES MORE EVOLUTIONARY THAN REVOLUTIONARY Dollar Share Of Central-Bank Currency Reserves; In Percent* Source: International Monetary Fund 9/06 * Excluding the effects of exchange-rate changes.

OTHER KEY FINANCIAL ISSUES IN PACIFIC BASIN TRADE AND FINANCE * Role Of Japan, China As A Source Of Global Liquidity --Excessive Money Growth As The Main Engine Of More Rapid Exchange-Rate Appreciation In China --Excessive Money Growth As The Main Engine Of More Rapid Exchange-Rate Appreciation In China * Impact Of Greater Exchange-Rate Flexibility On Local Economies, Asian & U.S. Financial Markets * Impact Of Global Interest-Rate Changes On Asian Financial Stability --The Flashpoint Shifts From Banks To Stock, Bond Markets --The Flashpoint Shifts From Banks To Stock, Bond Markets

ASIAN BALANCE OF PAYMENTS FAR HEALTHIER THAN DURING BEFORE THE 1990S GLOBAL FINANCIAL CRISIS Values In Billions Of Dollars ASIAN BALANCE OF PAYMENTS FAR HEALTHIER THAN DURING BEFORE THE 1990S GLOBAL FINANCIAL CRISIS Values In Billions Of Dollars Avg., Avg., Sources: International Monetary Fund; Institute For International Finance

ASIA STILL TILTED AWAY FROM BANK FINANCING Percent Of Private-Sector Financing -27% -21% -15% -9% -3% 3% 9% 15% 21% 27% % 79% 91% 103% 115% 127% Source: International Monetary Fund 2006 Est. Bank Lending, Ex. Repayments (Left Scale) Equity & Other Non-Bank, Private Financing (Right Scale)

THE CASE FOR AN EXTENDED “PAUSE” BY THE FEDERAL RESERVE * Economic Growth Strong Enough To Keep A Lid On Unemployment * Wage Pressures Counter Subdued “Core” Inflation * Financial-Market “Liquidity” Still Ample * “Effective” Interest Rates Still Fairly Low

ARE INTEREST RATES VULNERABLE TO AN UPWARD "RE-PRICING?" The Treasury Yield Curve, Selected Periods; Yields In Percent Years To Maturity 3/16/07 Source: Bloomberg Financial News, Inc. 12/4/06 Current Fed Funds Target Rate (6/29/06)=5.25%