Chairman, your Majesty, your Excellencies, my Lord Bishop, Ministers, my Lords, ladies and gentlemen. This is quite something. Thank you, Peter, for your compliments.
Peter first asked me if I would make a few remarks to this dinner a little over 12 months ago and I was extraordinarily lucky that I didn't say yes because, had I done so it would have been that the world was moving ever upwards, that house prices were increasing, that easy money was something that had taken over the world, and that there were ever more creative credit possibilities for borrowers, and the central banks were giving a fairly easy reach to those that were operating under their control.
At about this time last year there was, as there always is, a meeting of the central bank governors of the world in Jackson Hole, Wyoming, and, characteristically for the last 20 years, I've managed to give a dinner to about 20 of them and I can report to you that, on August 15th last year, the discussion was extraordinarily familiar. The only concern was that there were a few problems with mortgages. Without naming people, the Europeans were saying that their rates were fairly stable and beyond that, there were absolutely no problem at all.
Come September 15th and the reality had set upon us. I might tell you at the dinner I gave this year there was quite a lot of rewriting of history by those 20 people about what they said. Many of them, of course, were conscious of this, but didn't want to admit it or tell the others at dinner, for fear of scaring them.
But it was pretty clear that a touch over 12 months ago there was a general feeling of contentment, and that skyscrapers were growing ever higher and that the financial world was in great shape. That, of course, was true also of the City.
It was true also of institutions which are no longer with us and which suffered substantially, names like Fannie Mae, Freddie Mac, Bear Stearns, and of course Lehman Brothers, and a weakened AIG.
So the picture has changed a lot in these last 12 months. Dramatically, in fact. We've had write-downs in terms of assets of about $50 trillion - $50 million million, for those of you who don't speak American. That's equivalent to the world's GDP.
Global trade is down 12 per cent during the 12 months following that crisis.
I think you know that oil prices have slumped dramatically. Oil is now back to about $70, but, along with other commodities, has still not recovered to the heights that there were in those days.
Private capital flows to emerging and developing countries have also changed dramatically over this period, in a sense anticipating the crisis. In 2007, $1.2 trillion; in 2008, the number was 700 billion; in 2009, 360 billion.
These are not little adjustments. These are really tectonic shifts in the way our world operates.
The IMF has come in to help some 25 countries. Yet only 15 months ago, the head of the IMF was talking about how many people he was getting rid of because there was very little business for the IMF to do.
This is an astonishing series of events, and yet we were confronted on that day on September 15th with a monumental challenge, which was: how could we deal with this new crisis which was before us?
And, interestingly, the world banking community came together, remarkably, along with the governments of many of the countries pushing the banks and financial institutions, and the OECD countries put up in this last year, as many as $15,000 billion to try and stabilise the system; in that six months period, $15,000 billion, which was twice the amount that had ever been put up beforehand.
I'm giving you these numbers not to impress you and not so that you remember them, but merely to say that what happened after September 15th was not a minor adjustment. This was a shift in scale that we had never seen before and, if we had seen it, it would only have been comparable to the '30s in terms of the devastation that it brought.
Happily, in these recent months, there has been a restoration of some confidence. The markets are moving up gradually. Some of the worst affected areas have come off their low point, and in both the City and in the United States and in the financial sectors of the developed world, there is a sense that things are being restored to their former glory, or, if not to their former glory, at least in the direction of that happy moment.
But it is a time when government leaders are generally having a pretty tough time in balancing things, and I am surprised and delighted to see one of my former colleagues sitting opposite me, who I must say looks much better than I think he should, given the work and the pressures that have been upon him. But he is facing, along with everybody else, the problems of trying to deal with the fiscal realities of life as a government.
In the United States at this moment, both sides say there will be no increase in taxes, which is quite a trick when you're trying to re-stimulate the economy. When you make a speech about healthcare reform and say that it's not going to cost any more for services which will be expanded and enlarged. When the net interest at the moment is low because of interest rates and, as we have a federal deficit now approaching $1,600 billion.
So that, come 20 years after the beginning of these deficits, we will have a 100 plus per cent debt on the United States compared with its GDP, which will not be dissimilar from many of the other countries in the G7 and in the OECD; and where the labour markets have been pretty hard hit, as you know, in terms of unemployment; and where, in this country, a country which I work with and love, you have close to 8 per cent unemployment ‑‑ I think the number is right that the Secretary told you before ‑‑ and it's close to 10 per cent in terms of the United States.
This is not including unemployment for those that are partially employed, to which you can add another 5, 6, 7 per cent.
So the impact of this has been really quite dramatic. Quite dramatic in the United States in particular because, for the years that I described with the ebullience in the economy, the US was saving literally nothing, and now because people are running scared, savings have in fact increased to 5 per cent. One doesn't know if they will go higher, but that 5 per cent is likely to be a minimum, and it, of course, affects the amount of money which is being pumped into the economy.
So the US at the minute, with 5 per cent savings, has an impact on the income and the GDP of the United States in terms of demand, which is a reduction in aggregate demand estimated to be in the order of 3 per cent.
Now, we have a loss of 3 per cent of demand in the United States to make up internationally and since the US is much larger than other countries, others require much greater growth to fill that gap. In the case of China and India, you would have to have more than double the growth rate because of the small contribution of these countries to global GDP; both India and China together represent around 10 per cent of the GDP of our planet. But that is exactly what China and India are now doing: driving the global economy, despite their smaller size. Furthermore, over the coming decades these two countries will expand to account for nearly 25 percent of global output by 2025 and almost half by 2050.
Now, this is something that really I want to bring home because the issue is not just the analysis of what's happening in the UK and in the US and in Europe in terms of our static view of the rich countries in the G7. The dynamic which is going on underneath all this is a true challenge to the City and a true challenge to the G7, as we knew it.
For many years, the G7 could count on having a steady 65 per cent of overall GDP in the world, or the overall economic activity. That's been the case for the rich countries for many years. If you include the rest of the OECD, this figure will be higher – perhaps 80 per cent. But the G7, of which the UK is one, reached a level of around 65 per cent of the total GDP.
And we happily accepted that this was the way of the world; that we live in the City and London and live in the United States and we have been the dominant economic force. And, by the way, the dominant centre of financial services, including, of course, our host this evening.
But, as we look forward, we need to remember history because back in history, in 1500 and as recently as 1815, China had 25 to 30 per cent of the global GDP. 30 per cent of the global GDP. And as China races back towards its prior status, the status of the G7 is being challenged: the G7’s share of global GDP was 65 per cent in 1965 to 2002; between 2002 to 2009, it dropped to 53 per cent of global GDP; in 2025, it will be 42 per cent of global GDP; and, in 2050, 25 per cent of global GDP.
Probably it won't worry many people in this room. But it will worry our kids, if they decide to go into business, if they don't take a different view of education and what they're looking for.
And this dynamic is something which you, as leaders of the financial community, need to be thinking about because you used to have competitive advantage in many areas. In manufacturing, in industry. That competitive advantage has been eroded very significantly. We've retained an advantage in technology, but even the advantage in technology, as you well know, has been challenged.
I was really surprised the other day to dig out numbers about what our educational system is offering to our kids and to our foreigners and I would like to share these with you.
Roughly, there are 160,000 Chinese studying at American, European and British universities and Australian universities. 160,000.
In the case of the Americans studying in China ‑‑ and I'm afraid I could not get the statistics for the UK ‑‑ there are 11,000 Americans studying in China. Similarly, there are 2,700 Americans studying in India, compared to 170,000 Indians studying abroad.
The Chinese and Indians are learning English, learning Spanish, they're learning French, they're learning all the things we grew up wanting to learn.
But the world has changed and where are we going? We're sitting here when we, as leaders in this room, need to be emphasising to the next generation that the world of 2025 and the world of 2050 is a very, very different world.
Now, maybe my numbers are wrong. Maybe India and China cannot reach 50 per cent of global GDP by 2050, but 45 per cent, or 42 per cent, or 41 per cent. It doesn't really matter. When I was in Beijing, giving a speech at Beijing University, 700 kids in the audience, there was no translation or audio. That made a huge impression, as the kids asked me the questions.
This is a topic which I am always interested in and anxious to talk about because it is, I think, something which, as leaders in the financial community, we need to be not only thinking about in terms of our businesses, but thinking about in terms of shaping the world for the next generation and creating opportunities.
There is just one other point that I want to raise, because I was told if I stayed too long I wouldn't get asked again, even as a guest! The other point is that in Africa there currently live a billion people from a planet of 6.5 billion, and by 2050, this number will increase to 2.3 billion. This is a population which by 2050 will have an average per capita income variously estimated at between $2,000 and $4,000. This compares with projected incomes in China and India of between $40,000 and $50,000 per capita. This difference is profound.
With such large disparities in income and the free and rapid movement of information, this is a world that's not safe. This is a world where, if you travel in Africa, every village has someone with an ear piece and there is radio and a television. And when I was recently in one of these countries and was made Chief, they asked me if I’d like to know where they had their computers, and I walked down the street and there were two young Africans with their computers and one of them was literally reading The New York Times.
This is the world that the City needs to adjust to, that we need to adjust to, and that our kids need to adjust to. And I thought that it would be worth coming here not only to talk about our current crisis and saying I think we’ll get through it, because I think we will, but really to point to what I regard as the more important issue, which is the changing balance of our planet, the changing role of the City, and the enormous importance that we must give, as parents and as leaders, to guiding the next generation for the world that we're in.
