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The World Economic & FinancialThe World Economic & Financial

System: Risks & ProspectsSystem: Risks & Prospects

Prof. Jacob A. FrenkelProf. Jacob A. FrenkelChairman JPMorgan Chase International &Chairman JPMorgan Chase International &

Chairman Group of Thirty (G30)Chairman Group of Thirty (G30)

1 1/28/2010

The Tenth Herzliya Conference

January 31-February 3, 2010

IDC. Herzliya, Israel


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Six Global ChallengesSix Global Challenges

Financial MarketsFinancial Markets

The Global EconomyThe Global Economy

Global ImbalancesGlobal Imbalances

Exit Strategy: Monetary PolicyExit Strategy: Monetary Policy

Exit Strategy: Fiscal PolicyExit Strategy: Fiscal Policy

The Demographic ChallengeThe Demographic Challenge

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Global Financial Markets: Is theGlobal Financial Markets: Is theWorst Over?Worst Over?

Equity MarketsEquity Markets

Risk AppetiteRisk Appetite

Regulatory ReformRegulatory Reform

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4

Global Equity MarketsGlobal Equity Markets

our e Bloo ber Market ata Last U ate a 7

7 8 94

6

8

4

6

e elo eMarkets

E er iMarkets

(U

$ retur s

/ /

6 = )

M C e elo e Markets M C E er i Mrkets

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5

UBS Global Equity Strategy Risk AppetiteUBS Global Equity Strategy Risk AppetiteIndicatorIndicator

8 9-

-6

-5

-4

-

-

-

(inde

)

High Risk Appetite

ow Risk Appetite

Source UBS ast bser ation an

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The Global Economic SystemThe Global Economic System

Global Growth ProjectionsGlobal Growth Projections

The Rise of Developing CountriesThe Rise of Developing Countries

UnemploymentUnemployment

Global Trade and ProtectionismGlobal Trade and Protectionism

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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-6

-4

-2

0

2

4

6

8(%fr

r

)

r N

R l GDP Gr wth (%) d tr l tr R l GDP Gr wth (%) d tr l tr

7 1/27/2010

Source: IMF, av. Annual growth rates, last update Jan 26 2010, WEO (2008 Estimate, 2009 & 2010 Forecast)

Asia NICs

4.8%

Japan

1.7%

Eurozone

1.0%

US

2.7%

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Real GDP Growth ( ) Developing CountriesReal GDP Growth ( ) Developing Countries

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-5

0

5

10

( fro a

ear ago)

Russia Developing Asia Afri a Central & astern urope atin A eri a

8

Sour e:IMF, av. Annual growth rates, last update Jan 26 2010,W O (20 08 sti ate,20 09 & 2010Fore ast)

Developing

Asia 8.4

Afri a

4.3%

Russia

3.6%

Central &

ast. urope

2.0%

Latin A eri a

3.7%

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Global Growth Contributions (%)Global Growth Contributions (%)

n ustrial

lo in

(% ontribution to G rowth bas on )

n ustrial orl lo in orl

our a nnual rowth rat s last u at r ( sti at or ast)

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Unemployment Rate (%)Unemployment Rate (%)

(%)

ro one U.S Japan

So r e at onal Stat t al n t t te la t o er at on ro one Japan U.S.

Japan

.2%

uro one

.0%

U.S. 0.0%

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World Trade VolumeWorld Trade Volume

-

-

(a ual er e ta e ! a e) IMF Projections

2009: -12.3%

2010: +5.8%

12

Source: IMF, av. Annual growth rates, last update Jan 26 2010, WEO (2008 Estimate, 2009 & 2010 Forecast)

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Global Payments ImbalancesGlobal Payments Imbalances

Current Accounts ImbalancesCurrent Accounts Imbalances

Foreign Exchange ReservesForeign Exchange Reserves

Savings ImbalancesSavings Imbalances

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Current Account ofBalance of PaymentsCurrent Account ofBalance of Payments

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

-800

-600

-400

-200

0

200

400

600

800 ($B) Asia$658B

ME Oil Exp.plus Russia

$214B

Eurozone-$36B

U.S.- $370B

Asia & Oil Exporters SaveAsia & Oil Exporters Save

Europe BalancesEurope Balances

US SpendsUS Spends

Source M av. Annual ro t rates last update Oct 01 20 09 EO (2009 Estimate 2010 orecast)

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Current Account ofBalance of PaymentsCurrent Account ofBalance of Payments

ource a Annual ro t rates last u ate ct 01 20 09 20 09 st mate 2010 orecast

-$325

-$36-$22

-$37

$214

$658

-400

-100

200

500

US Eurozone Africa Latin America Middle East +

Russia

Asia

Of which:

China 451

Japan 106

US billions, 2010US billions, 2010

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16

Accumulation of Foreign Exchange Reserves ( B)Accumulation of Foreign Exchange Reserves ( B)

7

$3 $3$ 7

0

500

1,000

1,500

2,000

2,500

hina a an Russia ai an outhKorea

($B)

$ 775.5

$ 75.3

$ 5.1

$1 5.5$7 .3

0

250

500

750

1,000

1,250

1,500

1,750

hina a an Russia ai an outhKorea

($B)

StockStockStockStock

FlowFlow(2005(2005 2009)2009)

FlowFlow(2005(2005 2009)2009)

Source: Nat'l Statistical Institutes 12 / 200 9, Foreign-Exchange Reserves ex. Gold.

December 2009

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9.8

22.823.5

31.033.4

48.5

0

5

10

15

20

25

30

35

40

45

50

CHINA INDIA KOREA, REP.

OF

GERMANY JAPAN UNITED

STATES

Source: EIU estimates, annualaveragerates, Lastupdate 10/2009

National Savings Rate ComparisonNational Savings Rate Comparison

Gross Domestic Savings: 2009 (%ofGDP)Gross Domestic Savings: 2009 (%ofGDP)

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Challenges to Monetary PolicyChallenges to Monetary Policy

Global Interest Rate CutsGlobal Interest Rate Cuts

Central BanksBalance SheetCentral BanksBalance Sheet

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Coordinated Global Rate CutsCoordinated Global Rate Cuts

19

2005 2006 2007 2008 2009 2010

0

1

2

3

4

5

6(

" )

Canada uro one a an United tates United Kin do

our e: loo ber ar et ata, ast Update: anuar 29,2010

UK 0.5

uro one

1.0

apan

0.10

U 0.25

Canada

0.25

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Total Assets of Key Central BanksTotal Assets of Key Central Banks

20

l-07 O t-07 an-08 Apr-08 l-08 O t-08 an-09 Apr-09 l-09 O t-09 an-10 Apr-1050

100

150

200

250

300

350

400

Bo # 307

Fe$

256

# CB

156

(in $ e%

e $ &

' ly 2007=100)

(I D X) Bo (I D X)Fe e ral Re ser e (I D X) CB

So r e:Fe eral Reser e Syste , CB,BO , a st O ser a tion: CB,Bo an ary 22,2010 / Fe an ary 22 ,2010

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Challenges to Fiscal PolicyChallenges to Fiscal Policy

Global BudgetGlobal Budget DeficitsDeficits

Global DebtGlobal Debt

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Fiscal Positions: Budget BalanceFiscal Positions: Budget Balance( )

o

0

1 2

P

3

nited States a an Eu o one

Eu o one

.

.S..

a an.

Sou ce: IMF, a . nnual g o t ates, last u date ct , E Esti a te Fo ecast

22 1/28/2010


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Fiscal Positions: et DebtFiscal Positions: et Debt

o ce: IMF, a . nn al o t ates, last pdate ct 01 20 09, 20 09 sti ate 2010 Fo ecast

2000 2001 2002 200 2004 2005 2006 200 2008 2009 20100

40

50

60

0

80

90

100

110

1204 5 of6 DP

7

United tates apan ozone

apan115

rozone86

U

6

23 1/28/2010


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WorldWorld

Developed CountriesDeveloped Countries

Developing CountriesDeveloping Countries

China, India, AfricaChina, India, Africa

LongLong--term Demographic Challengeterm Demographic Challenge

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Source: United ations Populations Division, Last update 200

World Demographic Challenge: WorldWorld Demographic Challenge: WorldPopulation SharesPopulation Shares

2010

China, 20

urope,

11

US, 5

Other, 33

Africa, 15India, 18

Share ofWorld

Population

25 1/28/2010


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Projec e

c a e

opula on

2010 - 2030 :

Source: Unite Nations PopulationsDivision,Last update200

0

0,000

100,000

1 0,000

200,000

2 0,000

300,000

3 0,000

0-9 10-19 20-29 30-39 40-49 50-59 60-69 70-79 80+

ange in Population between 2010 - 2030 (in millions

World Demographic ChallengeWorld Demographic Challenge

+1400 2

2010Level: 6,908,689M

2030Level: 8,308,894M

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Projec e

c a e i

opula ion

2010 2030 :

Source:Uni e Na ionsPopula ionsDivision,Las upda e 2009

DevelopedCountriesDemographic ChallengeDevelopedCountriesDemographic Challenge

30,000

20,000

10,000

0

10,000

20,000

30,000

40,000

50,000

0 9 10 19 20 29 30 39 40 49 50 59 60 69 70 79 80+

Change inPopulation between 2010 2030 (inmillions

+44.4M

2010 Level: 1,237,228M

27

2030 Level: 1,281,629M

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Projected

change in

population

2010 - 2030 :

Source: United Nations PopulationsDivision,Last update2009

Developing CountriesDemographicChallengDeveloping CountriesDemographicChalleng

13 . M

0

0,000

100,000

1 0,000

200,000

2 0,000

300,000

0-9 10-19 20-29 30-39 40-49 0- 9 60-69 70-79 0

Change in Population between 2010 - 2030 (in millions

2010Level: ,671,461M

2030Level: 7,027,268M

28


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Projected

change in

population

2010 2030 :

Source:United NationsPopulationsDivision,Lastupdate 2009

China Demographic ChallengeChina Demographic Challenge

+108.3M

60,000

3 ,000

10,000

1 ,000

0,000

6 ,000

90,000

11 ,000

0 9 10 19 20 29 30 39 0 9 0 9 60 69 70 79 80+

Change inPopulation between 2010 2030 (inmillions

2030 Level: 1, 62, 68M

2010 Level: 1,3 ,1 8M

29


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Projected

change in

population

2010 - 2030 :


IndiaDemographicChallengeIndiaDemographicChallenge

+2 0.1M

-50,000

-25,000

0

25,000

50,000

5,000

100,000

0-9 10-19 20-29 30-39 40-49 50-59 60-69 0- 9 80+


2010Level: 1,214,465M

30

2030Level: 1,484,599M

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Projected

change in

population

2010 - 2030 :


AfricaDemographicChallengeAfricaDemographicChallenge

+491.1M

0

20,000

40,000

60,000

80,000

100,000

0-9 10-19 20-29 30-39 40-49 50-59 60-69 70-79 80+


2030Level: 1,524,1

2010Level: 1,033,042M

31 1/28/2010

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