1. The World Economic & Financial System: Risks & Prospects Prof. Jacob A. Frenkel Chairman JPMorgan Chase International & Chairman Group of Thirty (G30) 1 1/28/2010 The Tenth Herzliya Conference January 31-February 3, 2010 IDC. Herzliya, Israel

2. Six Global Challenges Financial Markets Financial Markets The Global Economy The Global Economy Global Imbalances Global Imbalances Exit Strategy: Monetary Policy Exit Strategy: Monetary Policy Exit Strategy: Fiscal Policy Exit Strategy: Fiscal Policy The Demographic Challenge The Demographic Challenge 2 1/28/2010

3. 3 Global Financial Markets: Is the Worst Over? Equity MarketsEquity Markets Risk AppetiteRisk Appetite Regulatory ReformRegulatory Reform 1/28/2010

4. 4 Global Equity Markets 1/28/2010

5. 5 UBS Global Equity Strategy Risk Appetite Indicator High Risk Appetite Low Risk Appetite 1/28/2010

6. 6 The 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 1/28/2010

7. Real GDP Growth (%) Industrial Countries 7 1/27/2010 1/28/2010

8. Real GDP Growth (%) Developing Countries 8 1/28/2010

9. GDP Shares: the new Center of Gravity 2008 1990 9 1/28/2010

10. Global Growth Contributions (%) 10 1/28/2010

11. 11 Unemployment Rate (%) 1/28/2010

12. World Trade Volume IMF Projections 2009: -12.3% 2010: +5.8% 12 1/28/2010

13. Global Payments Imbalances Current Accounts ImbalancesCurrent Accounts Imbalances Foreign Exchange ReservesForeign Exchange Reserves Savings ImbalancesSavings Imbalances 13 1/28/2010

14. 14 Current Account of Balance of Payments Current Account of Balance of Payments Asia $658B ME Oil Exp. plus Russia $214B Eurozone -$36B U.S. - $370B Asia & Oil Exporters Save Asia & Oil Exporters Save Europe Balances Europe Balances US Spends US Spends 1/28/2010

15. 15 Current Account of Balance of Payments Current Account of Balance of Payments Of which: China $451 Japan $106 US$ billions, 2010 1/28/2010

16. 16 Accumulation of Foreign Exchange Reserves ($B)Accumulation of Foreign Exchange Reserves ($B) StockStock Flow (2005 – 2009) Flow 1/28/2010

17. 17 Source: EIU estimates, annual average rates, Last update 10/2009 National Savings Rate Comparison Gross Domestic Savings: 2009 (% of GDP) 1/28/2010

18. 18 Challenges to Monetary Policy Global Interest Rate CutsGlobal Interest Rate Cuts Central Banks’ Balance SheetCentral Banks’ Balance Sheet 1/28/2010

19. Coordinated Global Rate Cuts 19 1/28/2010

20. Total Assets of Key Central Banks 20 1/28/2010

21. 21 Challenges to Fiscal Policy Global BudgetDeficitsGlobal Budget Deficits Global DebtGlobal Debt 1/28/2010

22. Fiscal Positions: Budget Balance Eurozone -6.6% U.S. -10.0% Japan -10.2% 22 1/28/2010

23. Fiscal Positions: Net Debt Japan 115% Eurozone 86% US 67% 23 1/28/2010

24. 24 WorldWorld Developed CountriesDeveloped Countries Developing CountriesDeveloping Countries China, India, AfricaChina, India, Africa Long-term Demographic Challenge 1/28/2010

25. Source: United Nations Populations Division, Last update 2009 World Demographic Challenge: World Population Shares % Share of World Population 25 1/28/2010

26. Source: United Nations Populations Division, Last update 2009 World Demographic Challenge 26 1/28/2010

27. Source: United Nations Populations Division, Last update 2009 Developed Countries Demographic Challenge 27 1/28/2010

28. Source: United Nations Populations Division, Last update 2009 Developing Countries Demographic Challenge 28

29. Source: United Nations Populations Division, Last update 2009 China Demographic Challenge 29

30. Source: United Nations Populations Division, Last update 2009 India Demographic Challenge 30 1/28/2010

31. Source: United Nations Populations Division, Last update 2009 Africa Demographic Challenge 31 1/28/2010