Session Title - If America Sneezes, Does the World Still Catch a Cold?
F Bergsten - Dir Peterson Institute for Intl Economics
C Siwei, Vice Chair, Standing Committee PRC
M Klein, Chair CEO Markets and Banking Citi
M Brauchli, Managing Editor, The Wall Street Journal
D McCormick, US Undersecretary of the Treasury

interesting session. i wonder what they really did not talk about. i feel that session really talked around the question, but really did not get to the meat of it.

what is your opinion of the US economy?
FB - the rest of the world will get the sniffles, but certainly not a cold. i believe that the world economy has certainly decoupled from the US. INDIA and CHINA now account for 50% of the world's economy. even if there is a slight slow down in China, there will be slowdown there from 11% to 9 or 10 %. the world as a whole will continue to grow. I also believe that we will see the first reverse-coupling... .this is when the others will help keep the US from falling too far. the mechanism is the trade balance. we have to remember that the US is no longer in a slowing. the internal market will stay low, but the international markets are expanding.

CS - i agree partially with FB. this is because the US is still the largest economy. the sub-prime crises might be over. it is my opinion that the US gov't has a policy of a weak dollar. the election year will also mean that little attention will be placed on this. i believe that the us economy will grow up to 3% next year. i believe that this year will will stick to the 8% growth goals. We overachieved in the economic area. China now has $1.5 trillion in foreign cash reserves. china has a huge excess liquidity. it is intended to reduce this in 2008. we also are heading towards fully convertible RMB.

MK - yes. if there is a sneeze, there will be a global impact. over 100 countries have grown at over 4% for the past decade [more or less]. this has been driven by three things
regulatory globalization
technology globalization
capital markets globalization
this has had a profound impact on the growth that i mention. the transformation of wealth and jobs. oil is a 4 trillion dollar business. 50% moves to four countries. the reverse-coupling will be important to make a soft landing.

DM - we have no doubt that the growth will slow. the question is not coupling. the three issues are - housing downturn, sub-prime crisis, and broad-based increase of commodities prices. these three are putting pressure on the economy. in order for the decoupling to be real, these threee issues must be decoupled. i do believe that the regulators are working on these three issues. The long standing policy is that only the US President and Sect Treasury speak to the policy of the dollar.

FB - one of my reasons for what i stated is the weak dollar. the trade balance has increased. the big improvement in the price competitiveness. the dollar has lost effective value of 25% and will still fall another 10%. we might see an export driven growth. I also have a problem believing that the surplus will drop in China. In reading all the numbers from the Govt, there is no way that it will drop. The Chinese surplus will soon approach the deficit of the US. this puts allot of pressure on the rest of the world to allow these flows to actually take place. in noting the actions o the Chinese Govt regarding the RMB which seem to be opposite of the intention to allow the RMB to float.

CS - we need to do three steps... 1 pegging to dollar, 2 pegging to a currency basket, 3 fully convertible. we changed this to referring to the dollar rather than pegging to the dollar. ..... just sell us a Space Shuttle and this would essentially take care of the deficit. you would be welcome to sell us high technology.

FB - we should not expect any immanent action by Congress to 'rock the financial markets' right now

MK - i believe that after we get thru this current phase of slow-down. we will realize that the current shift in economic structures of employment and industry is so deeply profound. the non-democratic companies are now the majority of the major growth countries. they are now 50% of the value weighted status; up from 10% in 1990. one of the significant issues is the relationship of commerce and State in these nations. upon what playing field do state-owned companies play? the ability to put up national walls is really almost unthinkable. will there be a backlash? in some areas yes. others not. we need to make sure that there is a clear amount of rhetoric so that the baby is not thrown out with the bath-water. the single most benefit of global liquidity has been the influx of liquidity from the new economies into the banks in the UK and US.

FB- it is quite incredible that the US congress did not know that the US is a debtor nation and needs $6 to 8 billion per day to survive. thus the Dubai Ports fiasco. today, they have a bit better understanding.... [[[i wonder how much?????]]]]

from the floor:
it seems that there are essentially three sources of liquidity concentration: Middle East due to oil/gas; Russia due to gas; China due to trade....interesting!