 Thank you very much. Again, we apologize. As Senator Brock was saying, some of the discussions on these were very interesting and intriguing, and we hope to be able to continue some of those here today. I'm Stephen Truggan, the Shoal Chair in International Business, and this is a forum where we're discussing the G20 and whether it will be able to achieve some concrete progress, or even at least a way forward in terms of fighting protectionism and putting the world economy back on track. I think as everyone's recognized, the stakes are incredibly high. Before the first G20 leaders meeting last November, we said it was kind of like in the middle of a five-alarm fire, calling together the fire chiefs to try to restructure the fire department. But now we're five months later, and the fire is still raging. It's spread to much of the world. You've got leaders like President Obama, who's going to be his first time on the world stage under an incredible amount of pressure, as are Gordon Brown, Angela Merkel, several of the EU leaders that are going to be facing elections and intense political pressure from this kind of firestorm that's gripped a lot of the developing world and the developed world. And the question is, will the G20 be able to meet the immediate challenges? We've seen a lot of breaks and divides on things like stimulus, whether we can go forward with monetary policy, reviving banks and lending, and most of these seem to have been papered over, or a few real concrete actions going forward. There's a lot of discussion about international regulation, but a real debate about whether this is the right time to do that, given the turmoil that we're seeing in the markets. And then finally, we're seeing some action to shore up kind of the firewalls and levies in the midst of this unprecedented storm, things like IMF reform. But we've also seen statements like the anti-protection statements in November that were really toothless, and were violated by 17 of the 20 countries, according to the World Bank. So we're really at an inflection point here to figure out, are we going to be able to address these challenges or even map away going forward. So we've got just an incredible panel here today to look at challenges, like are these gaps being bridged or are they being deepened between the U.S. and the E.U. on stimulus, whether China will add more in terms of monetary and leadership to the world system, whether the BRIC countries, which issued their first-ever communique in the finance ministerial, are going to be going along with the broader implications of where the G8 and some of the traditional countries want to lead the world, whether this is going to be more than the world's words or whether it's going to be the judicial pomp and circumstance that we see at G8 meetings without any real follow-up mechanisms or real impact. And finally, given that we've seen this spread from just being an economic issue to being a security issue and potentially a strategic issue with unrest and unemployment spreading from Latvia to China and, you know, risking kind of a repeat of some of the lessons of the Great Depression where we failed to see that unrest and unemployment led to authoritarian regimes' instability without any real roadmap for how to address those. Are we going to tackle those challenges head forward and to really grapple with those as we're looking at some of the core economic issues as well? So, as we address these today, we've just got a tremendous group, starting with Senator Brock and CSIS, counselor, trustee, head of the International Policy Roundtable, but who's really been at the cutting edge of many of the world's great developments on trade, including a father of the Uruguay Round that started the WTO, starting the real free trade movement in the United States with the first free trade agreements, but also were reminded as part of the Rio Group bringing trade and finance ministers together to address some of these issues. So, we're very proud to have them to address this in terms of particularly how it's affecting trade in the political situation going forward. Clay Lowery, who we've had the chance to work with in many government capacities. He's also president of the creation of many of the current financial structures we have going forward, including the G20 working with Secretary Geithner and was also intimately involved in launching the G20 Leaders Summit last November. So, he'll be able to provide an almost unequal perspective in terms of how these developed and how we got here. And finally, last but not least, we have David Schmick, whose book, The World Is Curved, was extraordinarily precedent in terms of looking at these challenges. And I think for those of us that has followed his work in the international economy, magazine, and elsewhere, you know, he's been ahead of the curve on so many of these different issues. And really free to speak his mind and kind of cut through some of the jargon and some of the traditional talking points we hear to address the key challenges we face. So, with that, I'd like to turn briefly to Senator Brock and to our other panelists to discuss this, and we'll open up to questions from you all and look forward to that. I'm going to focus on more of the political challenge first. The burden that these leaders face in trying to come up with some solutions in the G20 and beyond. Stephen mentioned the pledge that was made last fall by the G20. It was honored more in the breach than the observance. The United States, not least among those that broke the agreement, we passed a bar American and we bragged that we did it in a way that didn't violate the WTO. So what? It is a protectionist act and the rest of the world looks at us to make decisions. We even came down on Mexican trucks, as if they were a threat to our security. And you do have to worry that we're facing a very, very challenging time, not just economic terms, but political. The more we move to a global economy, the more we benefit the national. And the more we increase pain at the local. That's a hard combination for a member of Congress to face. We were very good at following the old political maxim. If you've got a problem, find somebody to blame, be sure they can't vote in your district. That's what protectionism is. And it has the potential for done great violence to our opportunity to crawl back out of this mess. We don't tell the American people that trade is not the problem, that nine out of 10 jobs are affected by productivity, technology, changing market circumstance, or on occasion, incompetent management. We just say, oh, it's somebody else, somebody else that's putting too much pressure on us. The bottom line is this is an extraordinarily dangerous time. We've, we've compounded this present situation with decades of fiscal irresponsibility, both parties refusing to deal with deficit, refusing to come to grips with the entitlement challenge we face, refusing to come to grips with some of the expenditures we're making that don't work. We have the highest expenditures per child in education of any country in the world, and some of the worst results. We have the highest expenditures per person in the United States for health, and some of the worst results, at least among the industrial world. We have the highest corporate taxes. And we wonder why we're less competitive than we'd like to be. We, we borrow from China in order to buy their product as if they were an endless, an endless opportunity there. We live in denial. And we've been doing it for for too long. So if you look at the way you, you break that cycle with whether it's a G20 or G2 or G8. We really do have to understand that you can't borrow your way out of out of this situation. You can't stimulate people who've been burned by getting so far into debt that they're terrified. You've got to find a way to grow your way out. And there's a limit to how much a stimulus cannot can get you to do that. And my own judgment is that the only way we can grow is by doing business with others, where both of us maximize our efficiencies. And that's called international trade. If you want the only free stimulus available, it's called trade. But to get from there is hard. The question then can we use things like the G20 to raise the stakes for the conclusion of the Doha round, to raise the price that people have to pay for engaging in protectionist acts? Maybe we should consider getting much more aggressive with some free trade agreements. Maybe we ought to pass things like the Colombian free trade agreement. Maybe we ought to talk about free trade agreements with Europe, or Japan, where we don't have any environmental labor issues. But somehow we've got to kickstart this recovery with something more than is being done now. And somehow we've got to find the leaders that have the capacity, the will, the integrity to do so. And the United States has probably got the most attractive articulate candidate for that responsibility. It's going to be very hard because I don't see a lot of support for him to take the hard steps in the Congress. That's my concern. First of all, my name is Clay Lowry. I'm responsible for toothless agreements and the G20. And so I understand kind of unfortunately how we got here and from a historical sense about the G20. In the 1990s, we were suffering through a series of financial crises in emerging markets, Mexico, Asia, Russia. It created, in some respects, a lot of bitterness, a lot of bitterness towards the IMF and other international financial institutions. Towards the leadership of the G7. It created a crisis of legitimacy in international organizations. It revolved around some tricky technical issues, revolving exchange rate regimes and debt workouts. And there was a fear that important countries on this kind of let's call it our road to globalization, we're going to disengage. And so one of the solutions was to come up with a G20 process to have emerging market countries and industrialized countries come together to discuss some of these problems. Because of the technicalities involved, it seemed like it made more sense to just stay at the finance ministry's level and central bank governor's level. And that was basically the world we were at for 10 years. So we fast forward to 2008. And there's a different crisis that's evolved. This time, though, not coming from emerging markets coming from developed countries, primarily the United States, but not just the United States. Again, there's a lot of bitterness. Some of this bitterness is towards the leaders of the countries, towards the G7, towards international institutions, not necessarily the IMF, but other types of institutions like the regulatory institutions. There's a crisis of legitimacy. And there's a lot of technical tricky issues to talk about credit default swaps, CDOs, and how do you regulate some of these issues? So the Bush administration in late 2008, again, another tricky path on the important road towards globalization, what do you do about it? I think one of the biggest fears within the Bush administration was, we don't want to see a return to the 1930s and the dangers that we saw at that time. And how do you do that? And one way to try to prevent it was to create a way of coordinating and having a real discussion amongst different countries. The G20 was the approach taken, not because anybody in probably the Bush administration thought the G20 was a perfect body because I doubt anyone did, but because it basically was an existing body that was there for a purpose, and it could be utilized. A different reason, which is not as well publicized, is I don't think President Bush, and I didn't ask him this personally, but I don't think he felt like he was in a position to figure out, do you stay with the G7? Do you go to a G20? Do you go to something in between that? And felt like this was a decision that was more for the next president in the United States, not for him. And at that point, that was neither President Obama or Senator McCain at that time. So now we're, here we are a few months later. And I think that as President Obama goes into, as Stephen said, his first real shot at the world stage, there are six over, I would say six themes or topics that are kind of for discussion in this group. And they're not in any priority, priority order. They're frankly just the way I wrote them down. The first is how do you stabilize the financial system or the banking system? This is an area in which almost the whole world agrees that it has to happen somehow. And in fact, actually, if anything probably when Secretary Geithner and Governor Central Bank Chairman Bernanke went to the G20 finance ministers process a couple weeks ago, they probably, this is where they probably got the most criticism. What is your plan for stabilizing your banking system? And since then, we've seen Secretary Geithner's rolled out some more initiatives and tried to come up with a plan that he can describe. I think that this is going to be a major area of issue and frankly, one where the US government is going to be on its back foot. Second, is how do you stimulate the global economy? Senator Brock referred to that which is this is where you've seen kind of the arguments internationally. Do the Germans really want another fiscal stimulus package? The United States has a large fiscal stimulus package. Is it going to work? Should others be doing this? I thought that you know, Secretary Geithner tried to come up with this kind of 2% rule that the IMF would follow 2% of GDP. I thought it was I didn't think it was such a great idea. But I think that that idea is going away, mainly because there is clearly disagreement on whether or not large amounts of fiscal stimulus is what is needed at this point in time and whether or not it will be effective. Thirdly is on financial regulation. Financial regulation, one thing that's happened is the Europeans, this has been a major focus. Obviously, it's a big focus here in the United States as well. Some would argue is it should be the focus at this time or do you need to do it at a later stage? What I think that you will hear is the discussion among some, which is that we need a global regulatory system, which back in November was not really part of the argument. I know it was in the press, but it really wasn't part of the argument, I think mainly because nobody exactly knows what the heck that means. But now it's basically it's becoming back again. I don't, I still don't think anybody actually knows what it means, but it's whether or not can you actually have more regulatory convergence on issues. It will be interesting to see whether or not the G20 can come to agreement on some regulatory issues. The one that we've been hearing about them, maybe there is some agreement, is something like tax havens. Let me just say whatever you think of tax havens, they have absolutely nothing to do with the financial crisis we're in right now. The fourth area, and I made this separate just because it's becoming, I think it's going to be the area where you see the most agreement will be on the IMF. The IMF, there's a variety of different parts of it. There's governance issues. Why is it that China has a lower voting share than Belgium? I think that's the one way people always frame it. Why is it that the head of the IMF needs to be a European and the head of the World Bank needs to be an American? So there's some governance issues about how do emerging market countries become more, get more say. There's a different issue which is about resources. The United States is talking about tripling resources. Europeans are talking about doubling resources. China is saying, well maybe we'll put some more resources in if you give something on the first thing, which is more governance issues. There is a different piece of talk which is about the IMF coming up with new types of mechanisms to provide basically something that a lot of people thought was a big problem in the 90s, which is unconditional finance. So liquidity support. This is something that the IMF announced last week. It is something that they talked about back in November. So far, the demand for that unconditional support is still a problem because it is supposed to go towards the good countries. And the good countries say we don't need the IMF. So how are they going to frame that and work on that issue? A different issue that might start popping up and you see this with Ukraine is, is the IMF having enough conditionality? So they're very scared of the Suharto moment where Suharto, where Kamda Su is standing over Suharto and talking about you must do this, you must do that, which is probably not what he was actually doing. And now the IMF doesn't want to have that moment ever happen again, but does it now put itself in a position where it's actually not helping countries because they're not helping themselves? And then finally, there's another tricky issue which is about this whole thing about SDR allocations, which has gotten all very confused about what is liquidity support, SDR allocations, and what is a global currency, which gets into what China was saying this week. And if I'm happy to deal with questions on that, very confusing and ridiculous subject. The fifth area, which I wanted to mention was development. I think that the World Bank is done a service by basically pointing out how many people around the world are going to that are not part of the global financial system in any stretch of the imagination are going to become very much poorer because of what's happening. And so I think that you will see the countries trying to figure out how to deal with a few issues. Do we need to provide more resources for the development banks? We've already seen that they want to provide more resources for the Asian Development Bank. We'll hear about the Inter-American Development Bank, the African Development Bank, potentially the World Bank. And secondly, are there ways of providing greater trade finance, especially for the poorest countries, because it seems like trade finance has dried up. Is that because there's less trade, or is that because there's less finance? The sixth area, and I think Senator Brock had on it very well, sorry, we'll just basically hit on it, just say the word is protectionism. And that will be an area that the countries will have to concern themselves with because frankly it's starting to rise and it's going to get worse, is my view. So all of those are the topics and I'll let David explain how we're going to solve all those topics. In eight minutes no less. My name is David Svigg, it's great to be with you. And to chat for a little while about the calm, peaceful international financial system we have right now. I feel sorry in a lot of ways for Barack Obama. So many of these problems they're not of his doing, but he's, you know, he asked for the job and they're going to, it's very tough. I mean, when I look at, I don't know if they've taken off, but I think they have, they're going to fly into a summit where less than a week ago the WTO World Trade Organization said issued their forecast. They said for this year trade will be down between nine and 10 percent. And which by the way, I went back and I looked in the period from 1929 to 32, the three year period trade was down about 30 percent. So we're on course to, you know, we're on a Depressionary course from the standpoint of a decline in trade. And this is just economically related to the negative effects on trade. We haven't seen a political effects, that is, you know, a rise in protectionism that, that if we're not careful, it is still to come. And I expect it to come. But I was, I was also, you know, as I read this WTO report, I also picked up the IMF's latest forecast, which they will present again to the, to the G20 heads of state. And they're projecting for this year growth, GDP growth to be down by five percent. But as I began looking at their assumptions, they see that trade is going to increase, increase by four percent. So that, that tells me that the IMF actually believes that, you know, they just didn't get around updating their trade numbers that, you know, this is a, a very, very ugly situation that President Obama is entering. You know, where are we today? I mean, we are experiencing kind of a global title shift, a massive deleveraging of the world economy in which the value of virtually every asset is being reappraised downward. And it is, you know, government efforts are valiant to try to come to terms with what is essentially almost like a force of nature. But it's a little bit like to mix the metaphors. It's like, you know, spitting into a force five hurricane wind. It's very, very tough, given what we're experiencing right now. You know, the conventional wisdom is that we have a, the bursting of a subprime related mortgage bubble. And that has happened. And that's globally speaking. And we saw the bursting of a 1.5 trillion bubble. But the conventional wisdom maintains it's just kind of, you know, it's just one bubble. But I would argue that we probably face nine bubbles. And you look at globally speaking outstanding credit card debt, 2.5 trillion, emerging market debt, 5 trillion. Some people would say it's higher. You have at least 15 trillion in foreign exchange derivative exposure. The commercial real estate globally and the reinsurance industry, at least 25 trillion. You have the notorious credit default swap bubble that everybody talks about. There are a whole series of these things. Now, this, I don't want to be too scary in this scenario, but you can easily, in the back of an envelope, see why markets are nervous. Because you total up, you can get to $100 trillion very easily. And let's assume that there's a 10% haircut on these bubbles, that the bubbles deflate by 10%. That's $10 trillion. To put this in perspective, global GDP is about 60 trillion. So we're talking very, very big numbers. And that's why, you know, there's such a, you know, the markets right now are so nervous. I mean, you know, it's kind of good and bad on the positive side. The world has plenty of capital. The downside is, it's all sitting on the sidelines. And I think about 8 trillion in global money market funds alone. And in the 1930s, we just stuffed money in the, in the mattresses. Now we move in the short term government debt in global money market funds. But, you know, another conventional wisdom, point of conventional wisdom that I'd like to deburse is the notion that we got in the, into this problem because, you know, some banks lent some money to people couldn't afford mortgages. And it was simply a mortgage problem that got out of hand. But I would go back, I would make the case that the seeds for the current situation were planted long before with the fall of the Berlin Wall, which was, you know, a very important event. But with that event, and I'm going to simplify a bit, but you saw major economies emerge, China, India, Eastern Europe, large parts of the Pacific Rim. And they wanted to be like us. They wanted to be capitalists. And they were quite good at it. And once you got to the late 90s with the Asian crisis and the Russian default, they became even better. They, there was a desire, most of the emerging markets to set up their economies as giant export platforms. And to export to the industrialized world with the U.S. consumer being the, you know, the gluttonous U.S. consumer massively overleveraged being the, you know, the favorite target. And, you know, this is no, the story isn't new. You saw this, you know, the emerging markets, you know, building up huge foreign exchange reserves as they exported to the U.S. and to Europe. And we, and that money was recycled back into our, into our treasury debt. And everything worked beautifully for a while. But I think, you know, when we, when we look at the kind of reporting on this, the last, you know, decade or two decades, you know, there's so much concentration on the gluttonous American consumer. And, and it was a reckless situation where you had people just consuming beyond their wildest imagination, going into debt, credit card debt and all the rest. But there was a, there's also a flip side to that argument and to that situation. And that's the situation that Barack Obama is going to have to confront. And the flip side is that the rest of the world, or at least the emerging markets, and I would throw in Germany and some of the other countries, became dangerously export dependent. And I think the argument was no one ever believed that the U.S. economy or its financial system could ever collapse the way it has. And so the assumption would be that we would continue to prop up the, the world economy. So you have this, you know, Obama is going into a situation where the very model under which the global economy has operated for the last two decades, the emerging market export model is what I call, has just made a crash landing. And even still, we hear the same questions saying, do you think the Chinese are going to buy our debt or do you, you think the American consumer once again steps forward and, you know, to, to carry the world forward, the world economy forward. Well, you know, if, if I had my way, I would have the president say, we need a new model. We need to rethink this whole system fundamentally, not just, you know, tinker at the edges. This is separate from the whole financial, you know, issue of a, of our complete lack of understanding of our financial paper and our turning over our financial destiny to 5,000 specialists, but that only know what this paper means and what its value is in a crisis. But I will end this with a couple points. You know, if you're watching the summit this week and you probably need a translator and not to translate, you know, the language because everybody will pretty much be speaking in English or at least have a translator there. You need a translator for the meaning. So when the German Chancellor says, we don't feel we need stimulus, fiscal stimulus or any additional fiscal stimulus, what she really means is the emerging market export model has crashed and European banks are massively exposed to the financing, as you pointed out, to emerging market trade debt. In fact, European banks are at least three times, and some argue six times as exposed to emerging market trade debt, as American banks are to subprime debt. It's just that the Europeans aren't talking about it and they don't want to, you know, it's very much hoping that no one notices, but they give you an example. The Austria, member of the European Monetary Union, 300 billion dollars of bank exposure, almost all to Eastern Europe, of course Hungary is collapsed next to it. The Austrian GDP is only 370 billion and so there's a significant exposure and that's why, Merkel, the translation is we're going to need every dime potentially to bail out our own banking system, but if in fact the world, if this trade trend that I'm talking about, trade growth trend, is actually a lot worse than the IMF projections, you know, the same thing with China, very similar type of situation where the Chinese leadership, they need to lecture the US. They need to say the Americans and the industrialized world, they got us in here because they got to deflect attention to the fact that China is a major social and economic bubble, potentially about the burst and they have huge expectations in the Chinese economy of, you know, the Olympics were supposed to be the coming-out party and it may in fact be the going-away party because they have, you know, their momentum-driven economy. I'm giving the glasses half empty side of this, but they're momentum-driven economy, heavily dependent on exports and they are trying desperately to stimulate their economy. I think it's very tough to do with an aging society, with no social security system, no safety net. The Japanese tried eight packages in the 90s, none of them worked. It's very, very tough to do unless I guess you drive around the villages and you knock on the door and say I want to see your toaster. It's an old toaster. Get in the truck. It's very hard to, you know, to force the kind of consumption needed. So anyway, I will end with this, that we are talking about, and we can go into it for a couple minutes, about the financial situation, which I had to specifically haven't gotten into directly, but I would say that, you know, we're fixated right now on how to bail out the banks, how to stimulate our domestic economy. The one thing we're not looking at is, with this collapse of the emerging market growth model, and with the collapse potentially of the European banking system, we are underestimating the potential for political risk. And we haven't figured, you know, we need to, we need contingency planning. Barack Obama needs to think through what happens if various things happen, because when the pie is expanding, everybody loves each other and the pie is shrinking, I think we have all types of scenarios. And I would say, is there anyone, there might be someone, anyone in this room who predicted that the Russians would march into Georgia? I don't find many people did. So the nature of political risk, the potential there, is the thing that I think is, that we're not looking at very closely right now in this country. And I think I've talked long enough. Thank you. Before we turn this over to questions, just to build on that last point, because I think it is so critical. You mentioned, you know, collapsing world growth by the IMF, collapsing trade. How do you see this rippling through the system, you know, the export model? What are the real risks you see to both democracy and stability around the world? And then I guess Senator Brock and Clay, if you could address, how do you think the U.S. political system, and both in the G20 and others, are going to react to this? And what kind of contingency plans or operational structures do they need to put in place to kind of weather this storm? Well, as I say, we already have, you know, a collapsing trade scenario. So once you add, I guess if you political risk, then the chances of the market seeing a protectionist shock, that rises significantly. I guess if you want to see a micro or a window into the potential future with emerging markets, look at Eastern Europe right now. I mean, they, you know, they are, they've done what other economies do when they're in trouble. They've slashed interest rates there. So their currencies have dramatically weakened. And in most cases, their debt borrowed from mostly European banks is, is, you know, is the arrangement is that has to be paid back in hard currencies, either in the Euro or use, or the Swiss franc. And, and of course, the local currency is plummeting. And so that means that they're going to eventually default on that debt. It's going to be very tough. And the IMF doesn't have enough money to bail out all emerging markets as this process unfolds. I mean, that doesn't matter if they increase the quota. They're talking about the big, big dollars, unless the Chinese, for some reason, step forward and, and put their massive reserves on the line. But it is, you know, I think the, again, to follow the European, what have they done? Well, the first thing you do is they do, you know, you can look at what they're doing, the German automobiles. Look at that. I, I, one of the, one of the scary scenarios, if you look at the Russians relationship to Germany, you know, they've done, not only the currency devaluation, but they've got, you know, duties on German automobiles that weren't there, all kinds of German products. I mean, it's, it's getting rough. And if, and as I expect that will spread, it could be a very ugly world. And I would love to, you know, one of the, one of the problems is that Obama doesn't have, when he looks at, he doesn't have the kind of strong leaders that he could reach out to that other presidents have had in, in Europe and, and elsewhere around the world. They see these, everyone seems to be, you know, politically very nervous. I mean, I think that the politics around the world are, I mean, especially geopolitics, will become interesting. I look at a country like Ukraine, which is obviously very geopolitically significant, and they're in trouble. And the IMF, obviously, has put together a package. It was a pretty significant package. And I don't think it's going to work. And so what will happen if that doesn't work, and the international community cannot rally around to provide more finance, because there's going to be a lot of people looking into internally, as opposed to externally. In some respects, maybe the more interesting thing is what's going to happen within our own country in terms of the politics. And it's pretty ugly. I mean, we were talking upstairs about whether or not does the pendulum switch too much from risk taking to absolutely no risk taking. And I would say that that's going to happen. It's going to happen because we're going to over-regulate. Even no one wants to, we're just going to do it. And then we're going to, we already have a situation where anybody now is just scared to put their head above the fray, because it's going to get slapped down. I mean, and I don't just mean the AIG compensation bonuses. I mean, just anybody who seems to basically be able to take risks seems to almost get into trouble within the political dynamics here in Washington. And so somehow, I think, and I'm glad to see that both President Obama and Secretary Geithner, I think, have recognized this a little bit, and have started to talk about how we need financial institutions to take risks. That is what they need to be doing. They don't need to take the risks maybe that was done three years ago, but they need to take some risks. And I, so I worry that that will create more of a problem within our own country about the politics creating even a worse problem for our financial system in terms of risk issues. Two thoughts. One, the great American job machine is called small business. Small business has no access to credit right now for IPOs for growth. And the willingness to extend credit is close to zero unless you've got AAA rating, which in case you probably don't need it. That poses a real serious challenge to our economic recovery. And it's going to be, it's hard to break that cycle right now. The other half of that, of the equation, though, has to do with trying to borrow our way to success. If you look at the rate of expenditures of our government, we're talking three and a half trillion dollars this year. Trillion dollar deficits almost as far as you can see in the future. Now money has to come from somewhere. You can borrow a lot of it. How many trillions does China have in reserve, David? Well, almost two. Almost two. So we can wipe out their reserves in about 60 or six months if they want to lend to us. Why would they lend to us? Because the other way we can expand money is by printing it. When you print money, the old rule of economic, Russian laws says bad money drives up good. The more money you print, the more you devalue your currency, the more you devalue your currency, the more you raise the cost of financing your expansion. So we face the unholy dilemma of either having to borrow or print. And the ability to borrow has a limit because we are increasingly less of a market to the country from which we want to borrow. And the printing will cause the currency to go down in value means interest rates go up and inflation goes up. There really is horrendous challenge to any member of Congress, much less the administration, to face the fact that we have some very hard things to do in this country. And we keep postponing those decisions. And it's just a challenge to see how we can turn the country around until we turn our political system around and get some people to take risk politically. That's hard to do. You've got a president with a capacity and whether he has the support or not, I'm not sure. Thank you. I'd like to open it up for questions. How about right in the back? Thank you, Zeng Xin from Cai Jing Magazine. Just China's central bank governor Zhou Xiaotuan suggestion about this ICDR making ICDR to a tradeable and reserve currency is rather actually for the longer term I think. But recently the Chinese vice-premier Wang Qishan suggested has made it clear that to inject into the IMF, he has prioritized the three ways of Chinese injection. First is for China to inject some capital in exchange for the quotas, of course. Second, you can make the quotas unchanged, but the IMF issue some more SDRs outside that that's the second way. And the list, but the third is the IMF to issue some debt to China and China will buy. China has made this clear. And also, Mr. Stroskal of IMF has said that all these three options is now very possible for China and IMF. So I wonder what do you think of these three options? What are the advantages and the difficulties of them? And also for the fourth, the longer term SDR reform, what's your will on that? Thank you. First, I think that it is a very legitimate argument for China to say if you want more money from China, we want more quota or we want a bigger say in what's going on at the IMF. I think that's a very legitimate request if you look. I think it was the, what I saw in newspaper this morning that had kind of who's underrepresented at the IMF and it looked to me, at least if I read it correctly, like besides the United States, the most underrepresented might be China. In Japan, I think was fairly underrepresented. So I think that that's a fairly legitimate thing. The question will be is in order for that to work, who gives up some power? And that usually means the Europeans. And so that's becomes a difficult issue. The second issue in terms of China basically saying that they are willing to buy bonds from the IMF, I think the trick there will be the IMF has never issued bonds in its history, to my knowledge. And so it will be a whole different world for the, for the IMF to get into to actually issue bonds. And so that means the membership is going to have to agree to something that will be significant given the fact that all most of the governments that are part of the IMF are going to also be issuing bonds to pay for all this fiscal stimulus. So at some point, there might be a little bit of a crowding out from everybody issuing bonds. I think the, there was a fourth skip to the SDR allocation. SDR allocation is an interesting idea, which is basically to try to help solve liquidity problems. And the, I think the only hold up would be is whether the United States agrees to it. I think that there are some within the Obama administration who are very supportive of an SDR allocation. There are some that question whether or not an SDR allocation is actually all that necessary right now, because is really what the problem in the world, a liquidity problem, or is there just a counterparty and solvency problem. I think it's an open question. I think that there's different sides of that debate. I'm not sure that right now the biggest problem we have out there is liquidity. And then finally is whether or not they're kind of the reserve currency aspect. I mean, I think the IMF would be the first to say that SDRs don't, are not a currency. I mean, they don't serve as a, as a medium of exchange. So, but I think I understand if you're in the Chinese government, why you're basically trying to figure out how do I move off of the dollar? But how do I move off of the dollar without driving the dollar down? And the reason is because our, so let's take David's $2 trillion of debt and not all of its dollars, obviously, but if so China says I want to move 10% of my allocation to some other currency. Okay, well that's selling $100 billion of US Treasury bills. That's significant. And that's, that significance could drive down the dollar, which China doesn't want to see happen because I would hurt the rest of their portfolio. So I think that what they're trying to figure out is how do you actually eventually move off of it? I find the SDR proposal a little bizarre, but at the same time, I think that they're trying to signal and I, you know, I, I probably should never, ever try to guess what China is thinking is, how do I move off of it in a way without harming the dollar in the short term? And I think that this is part of that idea. And this is maybe just kicking around some ideas. Well, I guess I would look at the, you know, the broader implications of the, of where the world economy is going, separate from the currency situation. If you look at the history, particularly in the, in the 30s, the, the countries that were the surplus countries, which in the scale of the US got hit much harder than the deficit countries. And, and if that is true today, then, you know, the, you look at the deficit countries, probably with the exception of China, Europe, other parts of Asia, Japan are going to suffer much more than ironically than the US. And if, if, if that's the case, we could end up in a situation where, you know, we have this US, this kind of two poles of the world, China and the US, with vastly different economic systems. And we're going to need to come to terms with, with that, that trade relationship. I mean, people worry about, you know, have continued to worry about the Chinese appreciating their currency, you know, they, they not, you know, I'm not to my concern is that, you know, not the worry about the Chinese not appreciating their currency. My concern would be at some point, the Chinese trying to engage in currency depreciation. I mean, I think that is, you know, the beggar diner, my neighbor currency depreciation, along with, you know, disguise forms of protectionism, protectionism is, I think the global fear. I mean, you see in Eastern Europe, you, as I say, you're going to see it expand. So I would worry that we end up with a world where everybody wants a weak currency because everybody wants to expand their way out of this, you know, using the export platform and, and it puts the United States in a tough position. That's why, you know, there was a guy, David Rothkoff, who wrote a piece in the Sunday Washington post outlook section on where are the leaders. And it was, I thought a very, you know, clever piece. It was a fun read too. But I mean, he's right. I mean, we're going to hold this together if we have leaders that kind of have a vision about, about what the dangers are. But I see the dangers there, thy neighbor currency, depreciation, protectionism. And then just as we saw in the 30s, you know, you see capital controls in one form or another, efforts to restrict capital as the great fear. Now, I'm my, my general view of the economy right now is I think that, you know, we was putting so much faith in the Obama stimulus plan. But I'm worried that, you know, we're moving, you know, so much of, you know, 70% of the 70% of the economy is the consumer and so much of the whether the economy succeeds or not, it depends on psychology. And we have a American, Americans collectively have just taken a $15 trillion hit to their balance sheet, to their, to their wealth. And so, you know, they're, we've gone, it wasn't that long ago, we were spending collectively, you know, a dollar and 20 cents for every dollar we earned. It was insanity. But we were the, you know, consumer, you know, last resort for the world. And, and now we're spending probably less than 50 cents. So what do we do? Do we return to the 70 or 80% level? Or do we return to something, you know, more like the 70s? And if, if in fact, we, you know, our propensity to consume as a, as a nation is never returns to even kind of the situation of the 90s, you then, then Obama's fiscal stimulus plan is far too small. Even if you buy, you know, looking for, you know, kind of a Kansy, Kansy and stimulus kick from it. It's small because the Americans consumer has, you know, this kind of psychological is in a retrenchment mode. And I'm, I'm concerned with that. And just to repeat a little bit of Bill's point, if you are, my, my line is your, if you're well Warren Buffett, but I had to remind myself, you know, Warren Buffett no longer has a triple A rated company, but say, Warren Buffett in the handful that, you know, highly respected companies, because I think the insurance industry is one of those bubbles and the reinsurance that's coming. It's going to be a big problem and his company is big. But let's say you're Buffett and you have, and you're, and your friends who have triple rated companies, it's got to be frustrating. You're sitting there, you look over and you see this, this idiot banker who's totally lost control of his balance sheet. He's getting a subsidized. He can borrow money for 2.9%. And, and then you have next to him kind of the, you know, the politically plugged in banker. I didn't say Goldman Sachs. I just, you know, but you have a, you know, he's getting money for 2.9%. But here you are. You've done everything right. You know what your balance sheet is. It's an accurate reflection. You have, you know, you run your company. You pay at minimum 6% for money. Now, if you're the, but you have this, you know, you're running this company. You see your son or daughter is sitting out in Silicon Valley and has a brilliant idea. It's going to be the next Steve Jobs. But if they're lucky, they're going to pay 12 to 14% for money. And as Bill said, they probably can't get the money because a venture capitalist will say, they'll never get an IPO. I'm just throwing money at a great idea, you know, in this kind of environment. And, you know, this is not a great way to have a financial system. And one of my concerns about, I mean, my hats, I think, you know, Geithner, our Treasury Secretary, you know, it's been unfairly maligned. I mean, I watched the rebrunds of Saturday Night Live, and it's like he's an idiot child, you know, and he's a smart guy. But, you know, it's unfortunate right now that there's so much distrust of Wall Street that I think no matter what Geithner comes up with, you know, it is going to be a complication because the public now assumes they're inside deals. And to tell you the truth, they are inside deals. But they, you know, and I would recommend there be much more transparency. I mean, you can call it whatever you want, call it a Bretton Woods II or call it a Manhattan Project, which I guess has some connotations that are not great. But there needs to be the pulling together of the world specialist in financial paper. And the chairman should be someone who's not from Wall Street. I mean, I got in trouble. I once said it was Jim Baker, you know, and Baker doesn't want to do that. So, but someone who's a proven problem solver but not from Wall Street puts these guys in a room and he says, look, we cannot bankrupt this country, you know, based on our fear of paper. And that's what we essentially have a web of paper that ensures the mortgage backed security or asset backed security market with another derivative pyramiding on top of that. But we have this, you know, we are paralyzed because we're so afraid of having to evaluate this paper. This group should know the counterparty risk, the second and third level, so that the American people can know. We know the whole story. So we know, for instance, if there's the credit default swap market, it's so bad that we the taxpayer money is going to, you know, to help Deutsche Bank or to help a French bank, you know, we should, we should have a much more, you know, a better understanding of the full nature of the problem. And I will there say, it's going to be my guess is highly international. So there should be burden sharing. This should be part of the G20, a discussion of how we unwind this paper. And if there needs to be burden sharing internationally, then we ought to all be in there and say, look, we cannot go down because we're worshiping at the shrine of the derivative market. We need to say to what what part of this market, for instance, was purely speculative. You can see I'm on a soap box here, purely speculative, just for trading profits, which which was a legitimate part of a kind of a hedging or ensuring operation for a company. But, you know, we just can't this notion that we can work behind the scenes and the public's just going to give us a pass on that. I'm not so sure in the long run that's wise policy. Anyway, let me just I'm sorry, I'm just jumping here. Here's the problem. Obama has got to walk the tightest line known to man. He's got to keep our confidence high enough to get things done. But he can't raise expectations to the point where we're going to get disappointed time. And you do that a few times and he's lost credibility and we've lost the ability to act. A lot of this is psychological and you've got to just accept that fact. And with all respect to David's point, the reason we're here is because we don't know how to measure risk in a world with derivatives and collateral debt obligations and all the rest. We've lost the connection between that local banker and the local homeowner. And if you break that tie and begin to slice and dice these obligations to the point where you don't even know what's in there and then you have to go to an AIG and get an insurance on it, there's no way to measure these things. That's where we are. And it's a really hard thing to change. The second complication is that if you want to deal with some of these issues and David's right, you're going to have to bail out some institutions we haven't talked about yet, tell me how we do it when we can't even get a majority of the American people to support betting on GM. How do you think they're going to feel if we want to bail out Dutch bank or UBS? It's not an easy sell. And then you've got to lay down the foundation of all this, which is as individuals, as families, as people, as communities, as a country, we have been spending way beyond our means. We've had negative savings in the United States certainly for the last 10 years. If you're going to shift back to the normal rate of savings, which is somewhere between 6% and 10%, that's going to take a significant whack out of our ability to consume. If you're going to do that, you're going to hammer China unless China is able to stimulate its consumption. China can't do it as fast as we would hope because their GDP is so much smaller than our civil leverage factor, or the mathematical model didn't allow them to move fast enough to solve our problem. All of this says that each piece of this, of this puzzle, is connected. And you can't do one without doing the others. If you try to do it that way, you're never going to get home. Let me just add this one more little point. You know, I feel for our Treasury Secretary, because he was there when Lehman Brothers went down. And in the whole Treasury and the Fed and entire Washington establishment completely underestimated the contagion effect. So there is a feeling now to be very, very careful about systemic risk to the international system having experienced Lehman. But I wonder if, in fact, that fear is keeping us from thinking big and thinking about outside, and I hate this cliche, but outside the box at finding solutions to dealing with this paper with a paper. Because if this were just any old other company, you know, the best stuff would be in a separate vehicle amortized over 40 years with some type of tax advantage and it'd be all over. But we're not thinking big, I believe, just because that Lehman experience was so traumatic as they saw the credit markets just seize up. And nobody wants to go through that again. So it's made us very risk-averse and it's made us also intellectually frozen. We can't think about anything that's outside of very, very incremental in our handling of this problem. And anyway. That's what it's like. Norman Bailey Institute for Global Economic Growth. I have a question for David Smick. But first, I would like to say that I think Mr. Lowey's question about whether we're in a situation of insolvency or liquidity was answered by your colleague. Bill Brock said you can't borrow your way out of a situation of over indebtedness. And David Smick said there's plenty of liquidity in the world. I would say that it's the solvency, stupid. I don't mean that to you personally, but it is. I had worse said today. David, now that the US government has, in effect, nationalized a good part of the economy and is telling private corporations, formerly private corporations, what to do and what not to do and who to hire and who to fire and who to merge with and so on and so forth, are we moving towards a corporate state, which in the 1920s, 1930s was sometimes referred to as fascism? Well, I'm not thrilled about it, about the direction we're moving in. I think we have a lot of confidence and the ability of government to handle this. But I will also, so philosophically, it's against everything I believe in. But I do think that if you take the taxpayer money, I do think it does make you different. And I think that you have to think long and hard about when you put a cap on a salary, because you don't know if you're essentially draining the financial institution of its talent. And I frankly think that you're going to end up with mediocrity. But on the other hand, you are different when you take the money. And you're then suddenly in the political arena. And I don't blame people for being angry. I mean, you can say it's a retention bonus. You take the money, then you're a different animal. I just hope it doesn't go beyond that, where we think for political reasons to. I mean, I hear from people who hedge funds in private equity firms that I say you're going to be involved in the TARP. I mean, in the public-private guidance plan. And they're nervous, because they say, we'd like to be. But what happens if you make a couple hundred million dollars in a year? And then the next thing you know, you're dragged to the basement of the capital into a torture chamber. And somebody said, and Dick Cheney's doing the water boarding when I said no. But I mean, you're, you know, and you're saying to the Treasury and to the minister, but you said you'd protect me. I don't think they can, when you're talking about this kind of populist political outrage. So I think it's, you know, they're real dangerous. I can understand, you know, you're different if you take the taxpayer money. But it's very hard to stop when you play the populist game. It's hard to stop at any particular line. I think the administration finally called on to that. Last week. Thank you very much. I'm John Rutherford with Interaction, which is a group of NGOs. Clay is an excellent list of your themes. I would like you or anyone there to give elements. There's no solutions at this point, exactly. But the stabilization of the banking and financial system and the stimulus of the global economy both seem to be almost impossible. Europe's saying they have a safety net. They don't have their stabilization. I mean, what are the, what would be the elements? Not a total solution, but what would be the elements that would be useful in trying to address one or both of those issues? Well, I think that it is, I guess if we had a solution for that, we would have tried to come up with it. I mean, I think that right now the, I mean, the reason why I asked about liquidity for solvency is I think there's a, there, well, I was called stupid. It, is that I think that people aren't sure. I actually believe it's more solvency. But I think that a lot of people keep believing it's liquidity and including people that are talking about SDR allocations and so forth. Fiscal stimulus, which is what obviously this administration, the Obama administration thinks is what is needed. I think it is something that the Japanese, the Chinese, I would guess, I would guesstimate that the Brazilians, the Mexicans, most of the other non-European G20 would also say is exactly what needs to happen because they are most concerned right now, not about their banking systems, they're most concerned about economic growth and job creation. The Europeans, I think, I think David's translation is a good one. I think that the Europeans would also say we've already done a lot. And we are concerned not just for saving money for a rainy day, so to speak, but which could be a huge hurricane. But because they're basically, there is some concern that we're overdoing some of this fiscal stimulus, and it goes towards Senator Brock's point about when does your debt start becoming a little less worth, it becomes more worthless, and then your dollar starts dropping. So I guess that if I had a solution, I mean, I don't know if anyone has a solution. I think that basically the Obama administration is trying to put together a plan in which they have a stimulus package. They have some way of trying to stabilize the financial system, including trying to figure out how to deal with the toxic assets. And by the way, I've noticed that they're running into the exact same problems that the Obama, I mean, the Bush administration ran into. In fact, and they're trying to make sure that they address the international problems by doing more on emerging markets by basically boosting the IMF. The area I actually think that they're not doing nearly a good enough job on is the area that Senator Brock and David Smith, both, and actually Steve Sragi, both hit on, which is protectionism. Let me just give you another one. The fact that in the stimulus package, talk about being scared, if you come in and help out on the public-private partnership, does that mean you have to get rid of or you can't hire people that have H1B visas in this country? It is just a ludicrous bill. And this, by the way, was passed with bipartisan support. And but it's just ridiculous that basically that's how we're going to help solve this problem because we're going to hire a more qualified American than somebody that comes from India. And it's just a crazy way of doing things. So I think that there are things that they can do. And the G20, hopefully, I mean, this was the overall discussion piece, helps us do a coordination to stay away from David's doomsday scenario of beggar thy neighbor currency policies and beggar thy neighbor regulatory policies. Yeah, I want to go to the specific policy that I would suggest. But before I do, let's admit that economic illiteracy is a contagious disease in Washington. And it's spread wide, particularly in place called the Hill. That's worrisome because you really do have to think out of the box. David said it, Clay, also. What have we not talked about? Anybody? Doha? The world trading round has been going on and on and on. We got close, but we never got to the point where we could reach an agreement. If you want to change the psychology of not just the United States, but of the world, how about committing to a significant reduction in trade barriers that now impede our recovery? Do that as a beginning. Now, where did we get caught up last time? A few countries, mostly one called India. OK, it's about time for a leader of the United States and the country and maybe our friends elsewhere to play some hardball. Doug got it, one country should not be able to bring the trading system to a crashing halt or refuse to allow the growth that will allow us to claw our way out of this mess. So it seems to me that if we want to have some serious movement to reduce the burden on the stimulus package and put the burden back on the economic genius of a trading system, tell the Indians to play or get off. Tell the Chinese, we need you and we're not going to take a no for an answer because your stakes are bigger than anybody's. If you do that, maybe we can shake the world up and quit whining about the fact that it's always somebody else's fault. Let me just make one more point because we've been talking about China and we're talking about how we finance our debt and all that. And let me just try to close the loop here a little bit. I'm a big admirer of Federal Reserve Chairman Ben Bernanke. I think he's a perfect guy that someone who's been a student of the 30s in charge when you're going through a period that has potentially some resemblance to the 30s. I think he loaded the Fed's balance sheet with a lot of dubious paper but it was all short term maturity and I had no problem with that. But I think there was a development that happened at the last meeting of the Fed, of the FOMC in which that was a huge issue and was barely mentioned in the press. And it relates to the Chinese and it relates to how we finance our debt. The Fed announced that it was going to buy long term treasury securities. And I think the message of that to the Chinese and to others was that's the crack open of the door for the monetizing of the debt. And I think that the Fed always, to be smart about it, always wanted to keep that option in case there's a doomsday scenario but had no intention of moving on that this soon except that they saw that the whole political base for bailing out the banks on Capitol Hill had totally collapsed. And so one that collapsed they immediately said we've got to do this or we're going to have a steeply slope yield curve. In other words, we're going to have long term rates continue upwards and short term rates even though we keep short term rates the same. And to tell you where things have been you had just before Christmas you know, the long term rate go from slightly more than two to almost three. And then the Fed has tried to bring it down. It's about two seven. But that was a very important underreported point. And I think the market doesn't think that Bernanke's never won some inflation but they don't know who's coming on. Who are the future Fed chairman? Maybe it's a political appointee from someone they don't know. You know, and you look at the history of back during the Nixon administration with Arthur Burns the pressure that can happen. So I do think that that, you know, that I wanted to close the loop because I do think that that is going to be a problem and the Fed's going to have to show with that it has great credibility in the future and is not, you know, doesn't consider. Now, you know, it seems absurd to think about inflation now except people who by bonds think about that all the time. Well, I think this has been a fascinating discussion out of respect for our panelists. I think we could go on all day on many of these issues even though it's not the most optimistic outlook out there. But thank you all for coming and thank you for participating and I think some very critical and important notes that going forward that we have to address. Thank you.