1. Market Meltdown: Global Trends and the Cyclical Turn Dr. Mark Mullins Executive Director Fraser Institute April 21, 2009

2. “Prosperity, boom, crisis, slump, and recovery succeed each other with a regularity that suggest(s) inevitability” Professor T. S. Ashton Economic Fluctuations in England 1700-1800 1959

3. “If a panic were to pass a certain height, that system, which rests on confidence, would be destroyed by terror” Walter Bagehot Lombard Street: A Description of the Money Market 1873

4. History Market Meltdown

5. Past Episodes Year StocksEvent 1701-41%Spanish Succession 1721-78South Sea Bubble 1722-43South Sea Bubble 1797-34French Invasion 1803-32Recession 1826-20South America 1837-24Foreign Investments 1848-28Railways 1866-27Bank Collapse 1877-34Depression 1893-27Gold Standard 1900-32Recession 1903-35Rich Man’s Panic 1907-45Bankers’ Panic 1913-24War Threat 1917-38WWI 1920-39Post War Bust 1921-29Post War Bust 1929-48Crash 1930-46Depression 1931-60Sterling 1932-74Depression 1938-48War Threat 1939-22War Threat 1940-27WWII 1941-22WWII 1942-28WWII 1946-23Post War Bust 1962-27JFK and Steel 1966-25Credit 1970-33Recession 1974-41Oil Shock 1978-23Stagflation 1982-22Recession 1987-36Crash 1990-21Recession 1998-19Asian 2002-27High Tech 2008-52Credit Source: Mullins

6. Leading Stock Markets Source: S&P 500, Various Historical Indices

7. Causes Market Meltdown

8. “A previous record of delinquency, foreclosure or bankruptcy; a credit score of 580 or below … and a debt service-to-income ratio of 50 percent or greater” Professor Paul Mizon The Credit Crunch of 2007-2008 Federal Reserve Bank of St. Louis Review Subprime Borrower

9. US Housing Prices and Rates Source: S&P/Case-Shiller, HSH Associates, US Federal Reserve Board

10. Scale Market Meltdown

11. US Housing Value Source: Mortgage Bankers Association, Author’s Calculations

12. Global Stock Markets Source: World Federation of Exchanges, Mortgage Bankers Association, Author’s Calculations

13. Credit Crisis Market Meltdown

14. Interbank Lending Rates Source: British Bankers Association

15. Stock Market Comparison: I Source: Dow Jones; MSCI

16. Stock Market Comparison: II Source: Dow Jones; MSCI

17. Stock Market Comparison: III Source: Dow Jones; MSCI

18. Economic Conditions Market Meltdown

19. US Production and Jobs Source: US BEA, Federal Reserve

20. Leading Economic Indicators Source: OECD

21. Leading Economic Indicators Source: Conference Board; Statistics Canada

22. Indicators of Coming Stability Source: US Federal Reserve Board, British Bankers Association

23. US Manufacturing Source: NAPM

24. Dr. Copper Source: Federal Reserve; CRB

25. US Real Bill Rate Prediction Source: Federal Reserve

26. US Yield Curve Prediction Source: Federal Reserve

27. The Real Leading Indicator Source: MSCI Barra

28. Global Trends Market Meltdown

29. Economic Freedom Global Trend I

31. Economic Freedom of the World n n Size of Government: Expenditures, Taxes, and Enterprises n n Legal Structure and Security of Property Rights n n Access to Sound Money n n Freedom to Trade Internationally n n Regulation of Credit, Labor, and Business Based entirely on objective, third party data or independent surveys for 141 countries

32. Economic Freedom Over Time

33. Top 10 Economic Freedom Source: The Fraser Institute

35. Economic Freedom of Canada n n Size of Government: Expenditures, Taxes, and Enterprises 53 n n Legal Structure and Security of Property Rights 14 n n Access to Sound Money 6 n n Freedom to Trade Internationally 52 n n Regulation of Credit, Labor, and Business 11 Based entirely on objective, third party data or independent surveys for 141 countries

36. China Global Trend II

37. World Economy Source: Maddison; Conference Board and GGDC; Others; Author’s Calculations

38. China’s Per Capita GDP Source: Maddison; Conference Board and GGDC; Others; Author’s Calculations

39. China’s Marketization Progress Source: NERI

40. China’s Business Cycle Source: Wu and Maddison; OECD

41. Chinese Stock Markets Source: MSCI Barra

42. Public Policy Global Trend III

43. Interventions Source: Author’s Calculations

44. Policy Summary Social housing policy, Freddie and Fannie: regulation and underwriting standards The monetary policy cycle 21 st century bank runs: Lehman Brothers and others Central Banks: lend freely to solvent entities at penalty rates Prudential regulation: leverage, maturity matching and risk pricing Market insurance Social banking policy Exit strategy – not “stimulus”

45. Numbers to Ponder Global Wealth$254 Tr Bank Assets $85 Debt Markets $80 Stock Markets $65 OTC Derivatives $15 Global GDP $55 US GDP $15 Central Bank Expansion $2.7 US Treasury “Bailout” $0.8 Obama “Stimulus” $0.8 US Baseline Deficit $1.2 Expected Canadian Deficit$0.03 Source: IMF Global Financial Stability Report, Davies et al, Author’s Calculations

46. Market Meltdown: Global Trends and the Cyclical Turn Dr. Mark Mullins Executive Director Fraser Institute April 21, 2009