Effects of the Recent Oil Shock on the Global Economy in 20052006: How Much of a Global Slowdown

1
Effects of the Recent Oil Shock on the Global
Economy in 2005-2006How Much of a Global
Slowdown?

• Nouriel Roubini
• Stern School of Business,
• New York University
• and
• Roubini Global Economics, LLC
• www.rgemonitor.com
• nroubini_at_stern.nyu.edu

2
The 2004-2005 Oil Shock

• Nominal and real oil prices have sharply
  increased since their 2002 trough.
• Nominal oil prices peaked above 70 per barrel in
  August 2005 and have remained close to 65 since
  then.

3
Past oil Shocks associated with global recession

• Past oil price shocks have been associated with
  US and global recession (and stagflation at
  times)
• 1973 Yom Kippur war
• 1979 Iranian revolution
• 1990 Iraqi invasion of Kuwait
• 2000 Second Intifada and restraints to OPEC and
  non-OPEC production

4
The latest oil shock is different

• Previous oil shocks led to recessions and higher
  inflation (stagflation)
• IMF rule of thumb a 10 oil price increase
  reduces global growth by 0.4 over time.
• The recent oil has not had much of an impact so
  far on inflation and growth.
• IMF predicts global growth of 4.3 in 2005 and in
  2006
• Inflation remains so far low in the US and
  other economies.

5
Why no stagflation this time around?

• Previous oil shocks were supply shocks. This time
  it is strong demand (from US, China, India) that
  is driving prices higher.
• Real oil prices are still below the post-1979
  peak (but above the post-1973 and post-1990
  peaks).
• Sound and credible monetary policies in the last
  two decades have kept inflation and inflation
  expectations low. So, response of monetary policy
  to the oil shock has been more muted.

6
Why no stagflation this time around?

• Major oil importers are less dependent on oil
  than in the 1970s.
• The oil shock has not so far seriously
  affected consumer and business confidence,
  perhaps because the shock was demand rather
  than supply - driven.
• Expectations that the oil shock will affect more
  income/output (the oil tax) than
  prices/inflation has led to lower long term
  interest rates following oil price spikes.
• High commodity prices have helped growth of
  commodity exporters.
• Unlike the 1970s, little impact on corporate
  profitability and on productivity growth.

7
Why no stagflation this time around?

• Oil importing countries consumers (especially in
  US) have mostly reacted to the oil shock as if it
  is temporary consumption smoothing via reduced
  savings/ higher borrowing. Thus, aggregate demand
  in US and ROW has remain sustained
• Oil exporting countries have reacted to the shock
  as if it is temporary, thus increasing savings
  rather than consumption. The increased in savings
  of oil exporters has contributed to a global
  savings glut that has kept long rates low and
  has thus sustained demand in oil importing
  countries. Recycling of petrodollars.
• Financial innovation and globalization allows to
  react more smoothly to oil shocks via hedging,
  insurance and international borrowing.

8
Risks and vulnerabilities from the latest oil
shock

• While the recent oil shock has not affected
  growth and inflation there are serious concerns
  about the future impact on growth and inflation
  in 2006 of oil prices at around 65 or higher
  levels.
• The US and global economy is subject to a number
  of risks and vulnerabilities that can interact
  with high oil prices to trigger a serious
  slowdown in 2006.

9
Risks and vulnerabilities in the US and global
economy

• Large global imbalances with large and growing
  current account deficits in the US.
• Large and growing fiscal deficits in the US,
  especially after Katrita (Katrina Rita).
• Shopped-out US consumers burdened with
  low/negative savings, rising debt and debt
  servicing ratios.
• Negative supply effects of Katrina.
• Negative business and consumer confidence effects
  of Katrina and recent oil spike.
• Risk of a flattening of the housing bubble, if
  not an outright bust of the bubble.

10
Risks and vulnerabilities in the US and global
economy

• Some increases in headline and core inflation
  and in inflation expectation.
• Possibility of further Fed tightening given the
  increase in inflation.
• Protectionism risks.
• Risk that foreign investors and central banks
  will be less willing to finance the US
  imbalances, thus triggering a hard landing for
  the US dollar and interest rates.
• Economic weakness in EU and still uncertain
  recovery in Japan.

11
Implications of these vulnerabilities

• High oil prices can interact with these
  vulnerabilities to lead to significant global
  growth slowdown.
• Inflation may pick-up leading to monetary
  tightening that may slow down further growth.
• Oil and commodity prices may sharply fall during
  a global slowdown.
• Will global rebalancing be orderly or disorderly?

12
Is it all due to high demand? Supply aspects of
recent oil shocks

• While conventional wisdom attributes high oil
  prices to demand factors, there are several
  elements of a supply shock.
• Katrina (and Rita) were a supply shock
• Geo-political risks (such as terrorism and
  Mid-East tensions) have created a fear premium
  (of about 10-15 a barrel)
• Global spare capacity is very low and
  concentrated in regions with high geopolitical
  risks

13
Supply aspects of recent oil shocks

• Very low oil prices in the 1980s have reduced the
  incentives to increase production and capacity
  and to reduce oil consumption
• In the 1970s oil exporters invested heavily in
  capacity but since demand grew slower than
  expected oil prices fell sharply reducing the
  incentive to invest more in oil capacity
• Global demand is expected to increase (by 2 mmb/d
  per year over the medium term) faster than supply
  in OPEC and non-OPEC leading to higher prices.

14
Supply aspects of recent oil shocks

• Very limited investments in refining capacity
  (especially in the US where no new refinery built
  since 1976)
• Peak Oil hypothesis of Simmons and others over
  medium term production will peak while demand is
  growing. Thus, oil prices will head higher.
• Most oil reserves are in countries with
  geo-political risks Iraq, Iran, Saudi Arabia,
  Russia, Indonesia, Venezuela, Nigeria, etc.
• Such countries are under-investing in oil
  exploration and production.

15
Supply aspects of recent oil shocks

• Speculators are now an important players in the
  oil market. Speculation in oil markets could be
  stabilizing rather than destabilizing of prices.
• Repeated Hurricanes has shown the fragility of
  the production/supply structure of the US where
  production and refining capacity is tight and
  weather-shocks are repeated and severe.
• Are more virulent hurricanes partly due to global
  warming?
• Repeated weather-related supply shocks also in
  other regions (North Sea)

16
Will Strategic Petroleum Reserves come to the
rescue?

• Following Katrina, the US and the other advanced
  economies decided to release part of their
  strategic petroleum reserves.
• Could these reserve significantly stabilize oil
  prices? Highly unlikely over time.
• If demand/supply conditions require higher oil
  prices, use of strategic reserves cannot affect
  such equilibrium oil prices as attempts to
  stabilize oil at prices below equilibrium will
  lead to a rapid depletion of such reserves.
• Also, such strategic reserves should be used
  mostly for truly strategic threats (such a
  confrontation between the US and Iran on nuclear
  proliferation issues)

17
The Hog Cycle of oil prices

• The oil market is subject to a medium term hog
  cycle of delayed supply response to demand
  increases.
• When demand goes up, supply is inelastic in the
  short run as risk averse producers will invest
  more in exploration and production only if the
  price increase is persistent rather than
  temporary.
• Thus, persistent increases in demand lead to high
  oil prices.
• Eventually exploration and production react but
  with a long lag.
• In the meanwhile the interaction of geopolitical
  supply shocks (as in 1973, 1979, 1990, 2000) and
  rising demand at times leads to a US and global
  recession.

18
The hog cycle of oil prices

• Then, such recessions cause oil prices to sharply
  fall as demand contracts in the face of an
  inelastic supply.
• Also, production from past investments made in
  periods of high oil prices becomes available when
  prices are falling, adding to the oil glut and
  price fall.
• Then, new investment stops again as oil prices
  are too low and a new hog cycle starts.

19
Optimistic supply/price view

• Supply side response to high prices may be
  significant
• Demand may sharply fall with high prices
• CERA expects significant increases in
  capacity/production (but see contrarian view of
  Skrebowski)
• Nuclear power may re-emerge as a source of supply
• Dont underestimate technological innovations in
  the oil/energy sector

20
Pessimistic supply/price view Oil will reach
100 in the next 3 years

• It is highly likely that oil will reach 100 per
  barrel in the next few years. Why?
• Global demand for oil is growing at about 2.1
  per year or about 2 mmb/d (million barrels a day)
  per year.
• So, new net supply has to increase by as much
  just to maintain prices at current high levels.
• But since existing production fields get depleted
  at the rate of over 4 mmb/d per year, new
  production from new oil fields has to be at least
  6 mmb/d per year just to ensure that the
  additional net demand is satisfied.

21
Where will the extra production come from?

• Who and where will produce this extra 6 mmb/d per
  year?
• Iraq where production and exports are falling
  because of a worsening security quagmire?
• Iran where the new government has stopped
  investment and where output production is falling
  (leaving aside the larger supply shock when the
  US - Iran confrontation on nuclear proliferation
  will come to a peak)?
• Saudi Arabia that is threatened by bouts
  of terrorism and a potential Shite revolt in the
  oil rich regions?
• Russia where the Putin bullying of oil companies
  and oligarchs will slow down FDI and investment
  in the oil sector?
• Venezuela where Chavez policies will reduce
  exploration, investment and production?
• Nigeria where civil war threatens production in
  the oil rich regions?
• The US Gulf Coast that will be pummeled over and
  over again by hurricanes as human-induced global
  warming is likely to make future hurricanes even
  more devastating than the current ones?

22
Tight supply and growing demand Oil at 100

• So, where will the new 6 mmb/d per year
  new production come from?
• It would already be lucky if, between OPEC and
  non-OPEC producers, we get two thirds of this new
  production per year available between now and
  2010.
• Thus, based on standard elasticities of demand
  for oil in face of a highly inelastic medium
  term supply, this implies that we will oil at
  100 per barrel well before the end of this
  decade.
• Of course, a US and global recession would be
  triggered by such a spike in the price of oil.
• Then, this recession would push oil and commodity
  prices down as demand sharply contracts in the
  recession.

23
Three scenarios for the global economy in 2006

• Continued economic growth (4.3 for world, 3.3
  for the US as in IMFs WEO) in spite of high oil
  prices. Continuation of Bretton Woods 2 (BW2)
  regime
• Moderate slowdown in US and global growth (2.75
  and 3.5)
• US and global hard landing with US growth down
  to 2 and global growth down to 3. Unraveling of
  BW2

24
Scenario 1 Continuation of BW2

• Current international financial regime
• High US growth (consumer of first and last
  resort)
• High China growth (producer of first and last
  resort)
• Large and growing US twin deficits (current
  account and fiscal deficits)
• Such deficits financed mostly by foreign central
  banks
• Forex reserve accumulation by foreign central
  banks to prevent their currency appreciation
• Continuation of BW2 will maintain high US, China
  and global growth (4.3) in spite of high oil
  prices

25
BW2 stability

• According to some (Dooley, Garber and
  Folkerts-Landau) BW2 is stable and will last for
  a generation
• China needs an undervalued currency to sustain
  its structural transformation
• Other EMs moving to a capital exporting (current
  account surplus) rather than capital importing
  (current account deficit) growth model
• Japan is already part of this regime (and Europe
  could eventually join)
• Reserve accumulation as a collateral for FDI
  investments in China/Asia

26
Implication of a stable BW2 for asset prices

• US Dollar will remain stable relative to Asian
  currencies and other currencies that have
  effectively joined BW2
• Long term interest rates will remain low as the
  supply of financing of US twin deficits from
  foreign central banks will continue
• Oil and commodity prices will remain high as
  growth in China and BW2 periphery will keep
  demand for commodities high
• Other risky assets (housing and equities) will
  perform well as BW2 will last for a long time.
  Little risk of bursting of the housing bubble
• The Euro and other floating currencies may bear
  at times like in 2004 the burden of downward
  pressures on the US from its large current
  account deficit.

27
Scenario 2 Global slowdown

• Global growth is already slowing down (see IIE
  forecasts)
• Both US and Chinese growth are slowing down
• US short term interest rates are moving higher
  and may get close to 5 by 2006 as the Fed is
  worrying about inflation
• This will lead to a flattening of the housing
  bubble
• With housing flattening consumption growth will
  slow down and private savings rate will improve.
• Thus, the US current account deficit will tend to
  improve in real terms
• Meaningful risks of rising protectionism

28
Scenario 2 Global slowdown

• Oil prices will go back to 30-40 per barrel as
  global growth slows down
• Other commodity prices will fall too.
• Negative implications for emerging markets
  economies
• Oil and commodity exporters will suffer
• Countries with current account deficits will
  suffer from worsening deficits and less financing
• Countries dependent on exports to US and China
  will suffer
• Countries with high debt ratios and other balance
  sheet vulnerabilities may face financial
  pressures, if not outright crises.

29
Scenario 3Hard landing

• Geo-strategic risks are on the rise (terrorism,
  Iran, North Korea, etc)
• Thus, oil prices will remain high with upward
  risks
• US current account deficit is growing rather than
  shrinking given the recent strength of the US
  and low long interest rates stimulating
  consumption via high housing prices
• There is evidence of a bubble in the housing
  market
• US fiscal improvement is temporary as making tax
  cuts permanent will bust the budget over the
  medium term. Also, Katrina will further bust the
  budget. So, twin deficits are likely to persist
• The recent US strength will fizzle once the
  medium term bearish factor (structural current
  account deficit) will dominate short-term
  cyclical bullish factors (US interest rate and
  growth rate differentials)
• The foreign financing of large US twin deficits
  will start to shrink, especially once China
  starts to move its currency parity more.

30
Hard landing scenario

• External pressure (protectionism in US/EU) and
  financial risks at home will lead China to let
  its currency appreciate.
• This China/Asia currency move could trigger a
  sharp move of the US dollar as both public and
  private investors will reduce their exposure to
  US assets
• Meaningful increase in US long-term interest
  rates as foreign financing of US twin deficits
  shrinks
• The US Fed may be forced to increase short rates
  to stem the US dollar fall and its inflationary
  effects
• Unraveling of carry trades and leveraged bets
• Risk of a fall of price other risky assets
  (equities, housing, EM debt, high yield, etc.)
• Risk of a systemic crisis if a major HLI goes
  belly up
• Risk of a US and global economic slowdown

31
Which scenario is more likely?

• The goldilocks scenario of a benign and
  sustained global growth is highly unlikely (20
  probability).
• The second scenarios of a significant US and
  global slowdown is the most likely (50
  probability).
• The third scenario of a hard landing is less
  likely than the second but cannot be altogether
  discounted (30).

32
Causes of global imbalances and of the bond
market conundrum

• Causes of the global current account imbalances
• US fiscal deficits leading to US current account
  deficits (important in 2000-2004)
• US high consumption growth and excessively low
  savings rates (partly driven by the housing
  wealth increase)
• High savings rates in the rest of the world
  (global savings glut of Bernanke) (2005 story)
• Global investment drought (2000-2005 story)

33
Bond Market Conundrum Explanations

• Central bank forex intervention (direct and
  indirect effects)
• Global Savings Glut (Bernanke)
• Global Investment Drought
• Global Capital Capacity Glut leading to low
  returns to capital in a wide range of asset
  classes
• Structural demand for long term bonds by
  institutional investors (pension funds, insurance
  companies, etc.)
• Stable anti-inflationary policies leading to
  lower term and risk premia
• Excessively easy monetary policies
• Risk of a global slowdown
• Deflationary effects of emergence of China and
  India
• Oil price shock and OPEC countries savings
  behavior
• Mispricing in the bond market (a bubble)

34
Why the bond conundrum will tend to fizzle out
over time

• Reduced foreign central willingness to accumulate
  US reserves and China/Asian fx peg move
• Global investment pickup
• Inflationary pressures in the US (oil, labor cost
  with slower productivity, pricing power of non
  traded firms)
• Larger than expected US monetary tightening up to
  a least 4.00 (and possibly 4.25) by year end
• Thus, US long rates (10yr Treas) will move
  towards 5 and higher in 2006.

35
Fed policy

• Fed Funds rate up to 4.00-4.25 by end of 2005
• Equilibrium real Fed funds rate is 2
  (historically 3) core inflation is close to
  2.1 (and rising) while Fed inflation target is
  1.50-1.75
• Economic growth at sustained pace
• So, 22 4, or 4.25 as the Fed is behind the
  curve
• Fed concerned about housing bubble and CA deficit
• The oil shock may lead to inflation surprises
• Higher labor costs, in face of slowdown of
  productivity, will increase ULCs
• Greater pricing power of non-traded firms

36
Prospects for US fiscal deficits

• US fiscal deficits are large and will become much
  larger in the medium term, after the cyclical and
  temporary improvement we are observing in 2005.
• The 2005 deficit improvement will not last
• According to recent CBO forecasts, if tax cuts
  are made permanent, AMT fixed, discretionary
  spending grows at the rate of nominal GDP and
  Social Security is privatized (plan 2), the US
  fiscal deficit will grow from 412 b (3.6 of
  GDP) in 2004, to 600b in 2009 (4.8 of GDP) to
  over 1,100 b (6.2 of GDP) in 2014.
• Katrina and Gulf Coast reconstruction will
  seriously add to the deficit.

37
US fiscal policy scenarios

• Even with more optimistic assumption (, recent
  spike in 2005 revenues, spending growth above
  inflation but below nominal GDP growth, not all
  tax cuts are permanent, AMT only partially fixed,
  a more modest Social Security privatization),
  fiscal deficit will grow to about 800b by 2014
  (4.2 of GDP).
• The US fiscal path is unsustainable it will lead
  to an accumulation of public debt that is not
  sustainable over time.

38
Structural fiscal deficit

• Of 6 fiscal change in 2000-2004, 4.6 of it was
  due to a fall in revenues 1.4 due to increase
  in spending (mostly defense/homeland security)
• Tax revenues in 2004 were the lowest in over 50
  years (since 1951)
• Structural fiscal deficit rather than cyclical

39
Financing of the US fiscal deficit implications
for long rates

• Since 2000, 100 of the US fiscal deficit has
  come from non-residents.
• US residents holdings of US Treasuries has been
  flat since 2000.
• Of the foreign financing about two thirds of it
  is coming from foreign central banks.
• 53 of US Treasuries are now held by non
  residents (and a large fraction of it by foreign
  central banks).
• US long rates (10-year Treasuries) are close to
  4 rather much higher because of foreign central
  bank financing.
• Significant effect of Asian intervention on US
  long rates.
• Serious shortening of the maturity of US
  Treasuries since 2000 average maturity down to
  55 months, marginal maturity down to 33 months.
• Balance of financial terror (Larry Summers)

40
The US current account is large and will worsen

• The US current account deficit will worsen rather
  than improve over the next few years (see Roubini
  and Setser (2004)).
• In 2005, the current account deficit is likely to
  be above 800 b (665 in 2004)
• US exports have to grow 50 faster than imports
  to keep trade deficit from rising.
• End 04 Exports 1140 billion, 9.8 of GDP
• End 04 Imports 1750 billion, 15.0 of GDP

41
Causes of CA deficit and implications for US

• 1990-2000 Deficit driven by an investment boom
  (new economy) growing faster than increase in
  public savings
• 2000-2004 CA deficits worsens by 2 of GDP in
  spite of a fall on I/Y of 4 of GDP.
• Why? Public savings went from 2.4 surplus to a
  3.6 deficit, a 6 of GDP turnaround.
• This large and structural CA deficit is a
  structural bearish factor for the US in the
  medium term. The dollar needs to fall to shrink
  this external imbalance
• These structural bearish factors will dominate
  bullish factors (rising US short rates and
  relative growth differentials) in the rest of
  2005 and in 2006

42
Implications of US fall

• 15 real depreciation in 2002-2004 did not led to
  a CA improvement, rather a worsening
• This is not just due to J-curve or effects of oil
  shocks
• You need both expenditure switching (via real
  depreciation) and expenditure reduction (via
  fiscal adjustment and increase in private
  savings).
• Without fiscal adjustment, CA can improve only if
  there is a fall in consumption and investment via
  higher real interest rates (i.e. hard landing for
  US and world)

43
Enormous adjustment needed to stabilize external
debt to GDP ratio

• Key concept Balance on trade, transfers and
  remittances that stabilizes debt to GDP ratio.
• Equation (real interest rate - real growth rate)
  external debt to GDP debt stabilizing balance
• U.S. Current balance (2004) -5.9 of GDP
• Debt stabilizing balance (2004) -2.0 of GDP
• Gap _at_ 3.9 of GDP

44
Financing of the twin deficits

• Financing need for the external imbalance are
  greater than the CA deficit as in 2003 and 2004
  net FDI and portfolio equity investment in the
  capital account has been a negative 200 b
  outflow.
• So financing needs in terms of debt in 2004 were
  865b rather than the 665b CA deficit.
• US net foreign liabilities are very large and
  growing

45
Most of the CA financing is coming from foreign
central banks

• A large fraction of the CA financing is coming
  from foreign central banks, not private
  investors.
• Contradiction btw US data showing only an
  accumulation of US dollar forex reserves by
  foreign central banks in 2004 of 250b and BIS
  data and national data showing an accumulation of
  over 530b.
• 2003 Dollar reserve accumulation financed 440
  billion of 530 billion US current account
  deficit.
• 2004 at 465b US FX accumulation, about 70 of
  the US CA deficit (665b) was financed by central
  banks and only 30 of it is financed by private
  foreign creditors.

46
Asian financing will shrink as several strains
will emerge

• Will Asian continue to supply the needed
  financing? No, as it is increasingly costly
• Carry cost of sterilized intervention is high
  (especially for China)
• Growing reserves invested in low yielding dollar
  assets growing risk of potential large
  valuation losses.
• China now 600 billion in reserves (mostly in
  ). 30 real depreciation loss of at least 150
  billion, or _at_ 10 of GDP .
• China in three years. 1.2 trillion in reserves.
  30 real depreciation losses of at least 300
  billion (or 20 of current GDP).
• Scale of needed depreciation rises over time.
• Sterilization is limited thus, domestic credit
  growth is excessive and creating domestic
  financial and investment bubbles in China
• Risks of price inflation in China and Asia as
  sterilization is partial.

47
Asian financing will shrink as several strains
will emerge

• Real appreciation in China is inevitable over
  time it can occur via nominal appreciation or
  higher inflation the latter is
  socially/politically costly (see early 1990s).
• Over-financing by China of the US current account
  deficit as there is FDI and hot money in addition
  to the Chinese CA surplus. The world is
  free-riding on China and Asia.
• So, the current regime (i.e. Undervalued exchange
  rates Current account surpluses, FDI inflows,
  Extra speculative inflows, Capital flows
  recycled back to US) is not sustainable and will
  unravel.
• Implication China will move its peg in the fall
  of 2005

48
China peg move and its implications

• China will further move its currency rate
  relative to the US in spite of the alleged
  slowdown of the economy
• Peg move needed to deal with the domestic
  financial and other imbalances
• Peg move needed to deal with the external
  protectionist pressure

49
Implications of a China 10-15 revaluation over
the next year

• Other Asian and BW2 countries will be willing to
  let their currencies move
• BW2 will start to unravel
• The smaller the move the greater further capital
  inflows to China/Asia in expectation of further
  move
• A significant move will reduce the rate of
  reserve accumulation in China/Asia
• Other central banks may start to diversify
• Private investors willingness to finance the US
  depends on the actions of their central banks a
  new form of fixed rate moral hazard (see Japan
  case).
• Once central banks signal less willingness to
  finance, the trigger for private investors to
  roll-off asset exposure will be significant
• This will put pressure on US long term interest
  rates (as well as on the US dollar)

50
By-product beginning of BW2 Unraveling

• BoJ (and ECB) FX intervention would only allow
  BW2 periphery to get rid of the unwanted
  outstanding stock of hot potatoes
  transferring the currency risk.
• But such a stock of unwanted hot potatoes is
  increasing at a rate of 800b a year. So, someone
  has to hold it in equilibrium when most players
  in this game will be trying to reduce further net
  accumulation of US dollar asset.
• This game larger US financing needs and reduced
  foreign willingness to finance it - is thus
  structurally unsustainable and will unravel.

51
Need to transition to a new system via a
coordinated grand-bargain

• Need change in pattern of global growth and
  national macro policies.
• US savings rise (better from falling budget
  deficit than falling consumption).
• Asian demand rise (need rising consumption, not
  falling investment) and a currency appreciation
  in Asia.
• Need an ECB/ Eurozone policy that supports
  domestic demand growth. Lower interest rates.
• Need policy stimulus and structural reform in
  Japan and Europe.

52
Soft-landing rebalancing versus hard landing

• Need coordination across Pacific as well as
  across the Atlantic
• Obvious deal US fiscal restraint, European
  monetary loosening, Asian exchange rate
  adjustment, acceleration of structural reform in
  Japan and Europe.
• But US reluctant to do more than talk about
  fiscal restraint, Asia reluctant to do a
  meaningful exchange rate adjustment, Europe
  reluctant to use monetary policy in aggressive,
  US style.
• So, likelihood of a orderly global rebalancing is
  low
• Disorderly hard landing is more likely sharp
  dollar fall, bond market fall, fall in other
  risky assets prices (equities, housing, EM debt,
  high yield), risk of a sharp US and global
  slowdown.