paul.mason.01@bbc.co.uk

THE GREAT MODERATION
Good luck?
Structure?
Policy?

AS % OF GDP

(COMPANIES AND CONSUMERS)

ASSET BUBBLES
“assets trade in high volumes at prices much higher
Than intrinsic value”

DOTCOM

+ ASSET BACKED SECURITIES

+ COMMODITY INDEX

+ HEDGE FUND ASSETS

+ CREDIT DEFAULT SWAPS
2000 $1 TRILLION
2008 $58 TRILLION

WHAT DROVE THE BUBBLES?
Low interest rates
Savings glut

A QUICK RECAP
§
§
§
§
§
§
Low interest rates
+ Oversupply of savings (Asia)
= Rising debt in USA
2001: Dotcom bubble bursts
Asset backed security bubble begins
…then US housing market overheats

US HOUSING COLLAPSE

HOUSING + DOW JONES

HOUSING + DOW + OIL

THE CREDIT CRUNCH
§
§
§
$1 TRILLION WRITTEN OFF BY BANKS
$1 TRILLION MORE TO COME
$12 TRILLION IN GLOBAL BAILOUTS
(INC CREDIT GUARANTEES)
§
§
$1.2 TRILLION FISCAL STIMULUS
$32 TRILLION LOST ON STOCK
MARKETS
§ GLOBAL GDP = $64 TRILLION

THE CREDIT CRUNCH (contd)
§
§
§ ICELAND, UKRAINE, HUNGARY,
SERBIA, LATVIA, IRELAND, BELARUS
§ FORTIS, HYPO, UBS, NORTHERN
ROCK, B&B, ANGLO-IRISH,
LANDSBANKI, GLITNIR
WOOLWORTHS, ZAVVI, MFI
FORD, CHRYSLER, GM

WORLD GDP (IMF)
CENTRAL SCENARIO JAN 09

RESPONSES
§ FISCAL STIMULUS
ú Tax cuts
ú Public spending increases
§ MONETARY STIMULUS
ú Zero interest rates
ú Quantitative easing

WHAT IF IT DOESN ’T WORK?

NEXT 6 MONTHS (UK)
§ Bigger fiscal stimulus
§ Tax cuts or rapid spending boost?
§ Bailouts/lending direct to corporates
§ Potential opportunity for SMEs
§ Quantitative easing (printing money)
§ Unconventional methods better for businesses than Japanese styles
§ Industrial strategy

WHAT IF IT DOESN ’T WORK?
MAIN SOURCES OF OIL DEMAND

WHAT IF IT DOESN ’T WORK?
SOURCE IMF 29 JAN 2009 STAFF RISK ASSESSMENT

IMF PRICE PROJECTIONS
SOURCE IMF JAN 2009

SUMMARY
SOURCE IMF JAN 2009
§ Ghost of Jakarta?
ú Not likely given OPEC stance
§
§
Global Repeat of Japan’s Lost Decade?
ú 11% failure rate of IMF model. USA is key
ú Outlying risk.
Peak Oil
ú “Multiple peaks”?
ú 30% of demand = Asia/Pacific