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&YUSFNFSJTLT
*OUSPEVDUJPO
Econom|cs concorns lho u||ocul|on oí scurco rosourcos. Ño scurc|ly. no
oconom|c prob|om - ovoryono cun huvo us much us lhoy oos|ro. ln moro
co||oqu|u| lorms. oconom|cs |s uboul how lo porl|on oul lho cu|o. As o|v|o|no u
orow|no cu|o |s u much moro p|ousunl prob|om lhun o|v|o|no u slul|c cu|o (or.
houvon íorb|o. u shr|n||no cu|o). much oí oconom|cs |s uboul orowlh.
Cup|lu||sm hus bocomo lho oom|nunl oconom|c írumowor| íor onoonoor|no
wor|o orowlh. (By cup|lu||sm. wo roíor lo lho r|s||no oí pr|vulo cup|lu| íor lho
prospocl oí rowuro uno lh|s |mp||os corlu|n lh|nos such us mur|ols. proporly
r|ohls uno lho oníorcomonl oí conlrucls. Wo mu|o no ussumpl|on roouro|no
po||l|cs - íor oxump|o. oomocrucy.) Tho ono oí cup|lu||sm |s lhoroíoro lho
u|l|mulo oxlromo r|s| - conslru|noo orowlh uno lho ono oí |nvosl|nol
ln lh|s pupor wo cons|oor |nvoslmonl r|s|s - lhoso lhul cou|o uííocl ussol
rolurns (uno. |n somo cusos. lho ussoc|uloo ||ub|||l|os). Wo oo nol cons|oor olhor
oxlromo r|s|s such us írom |onoov|ly. oporul|ons. procossos or sysloms.
ln uoo|l|on lo lho ono oí cup|lu||sm. wo |oonl|íy 14 íurlhor oxlromo r|s|s wh|ch.
wh||o vory un|||o|y. wou|o |mpucl oconom|c orowlh uno ussol rolurns. shou|o
lhoy occur. Wo oo nol c|u|m lh|s lo bo un oxhuusl|vo ||sl.
A|| 15 r|s|s uro ooscr|boo |n lho uppono|x (uno. íor lho |nlorosloo rouoor. u
íu||or vors|on oí lho uppono|x |s uvu||ub|o on roquosl) bul íor lho su|o oí brov|ly
wo oroup lhom |nlo lhroo culooor|os - ínunc|u|. oconom|c uno po||l|cu|
(|nc|uo|no 'olhor') - uno wo commonl on ouch oí lhoso culooor|os.
Tho ovonls oí lho |usl lwo yours huvo oomonslruloo lhul r|s| munuoomonl
cunnol uííoro lo slop ul lho 95
lh
porconl||o (vuR
95
). Wo nooo lo íno u wuy lo
|nc|uoo vory un|||o|y. bul polonl|u||y h|oh |mpucl. ovonls.
5IFNFNPSBCMFFWFOUTPGIJTUPSZBSF
UIFWJTJCMFFGGFDUTPGUIFJOWJTJCMF
DIBOHFTJOIVNBOUIPVHIU
Gustavo Lo Bon, 5IF$SPXE, 1895
2
0VSBQQSPBDI
Th|s pupor slurls lho procoss oí cons|oor|no oxlromo
r|s|s. bul ooos nol oííor u comp|olo so|ul|on. A comp|olo
so|ul|on comb|nos u quu||lul|vo unoorsluno|no. quunl|lul|vo
unu|ys|s (mooo|||no) uno u cosl-bonoíl unu|ys|s oí
poss|b|o hooo|no slruloo|os.
Wo slurl w|lh lho quu||lul|vo unoorsluno|no - 'whul cou|o
cuuso lh|s ovonl?'. '|s |l p|uus|b|o?' uno 'ussum|no lh|s
ovonl occurroo. whul wou|o bo lho consoquoncos?'
Th|s upprouch |s o|rocl|onu||y |n ||no w|lh lho lh|n||no oí
Ñuss|m Ñ|cho|us Tu|ob. uulhor oí 5IF#MBDL4XBO. who
urouos lhul wo shou|o o|vo up on ínunc|u| mooo|||no us
'no mooo| |s bollor lhun u buo mooo|¨. Tu|ob uovoculos lho
uso oí omp|r|cu||y-busoo ru|os oí lhumb. Somo oí lho
|ssuos |nvo|voo w|lh quunl|ícul|on uro cons|ooroo |n lho
'Exlromo vu|uo lhoory' s|oobur on puoo 6.
'JOBODJBM
F|nunc|u| oxlromo r|s|s ossonl|u||y rovo|vo urouno
so|voncy. Cun lho ínunc|u| |nsl|lul|on puy |ls oobls w|lh
uvu||ub|o cush? Tho |nlorconnocloo nuluro oí lho mooorn
ínunc|u| syslom uno lho (sl|||) h|oh |ovo|s oí |ovoruoo
moun lhul |nso|voncy íor ono |nsl|lul|on cun qu|c||y
bocomo u syslom|c prob|om.
Tho pr|mury lr|ooors íor ínunc|u| r|s|s (so|voncy) uro
íu|||no ussol pr|cos uno íu|||no |ncomos. F|nunc|u| r|s|s
cun bo so|í-oonoruloo (íu|||no ussol pr|cos) uno
lrunsm|lloo lo lho rou| oconomy. us wo huvo roconl|y
soon. R|s|s cun u|so bo oonoruloo by u rocoss|on |n lho
rou| oconomy wh|ch rooucos |ncomos (corporulo |ncomos
lhrouoh íu|||no su|os uno/or housoho|o |ncomos lhrouoh
unomp|oymonl) uno lrunsm|lloo lo lho ínunc|u| soclor
lhrouoh ooíuu|l on |ouns.
Whulovor lho lr|ooor. ínunc|u| r|s|s w||| oonoru||y moun
lhul mosl ussol pr|cos ooc||no. us whulovor cun bo so|o |s
so|o lo ru|so cush ('corro|ul|ons lono lo ono'). Thoro |s
u|mosl corlu|n lo bo u í|ohl lo quu||ly. moun|no lho
h|ohosl quu||ly bonos (sovoro|on) shou|o oulporíorm olhor
ussols. H|slor|cu||y. oo|o hus boon u oooo hoooo uou|nsl
ínunc|u| lurmo|| (us. |í cup|lu||sm woro lo ono. oo|o |s
probub|y moro usoíu| |n lho ío||ow|no roo|mo lhun
socur|ly corl|ículos).
&DPOPNJD
Tho oconom|c oxlromo r|s|s uro |oss homooonous lhun
lho ínunc|u| r|s|s. runo|no írom u ooíul|onury oopross|on
lo hypor|níul|on uno u rolurn lo u oo|o slunouro.
Tho ooíul|onury oopross|on r|s| |mp||os lhul oovornmonl
ucl|ons lo oulo w||| provo lo bo |ncupub|o oí rolurn|no lho
oconomy lo suslu|nub|o orowlh. Th|s wou|o bo u vory
buo onv|ronmonl íor ussol pr|cos uno |l |s |||o|y lhul
lhoro wou|o bo u í|ohl lo lho suíoly oí sovoro|on
(nom|nu|) bonos.
Tho olhor oconom|c r|s|s ossonl|u||y ussumo lhul
oovornmonl ucl|ons uro succossíu|. bul ul u pr|co.
A curroncy cr|s|s cou|o bo proíloo írom by ho|o|no
unhooooo íoro|on ussols. bul |s |||o|y lo bo h|oh|y
o|srupl|vo lo oomosl|c ussol rolurns ul |ousl |n lho shorl
lorm - lho cr|s|s w||| huvo boon lr|oooroo by somo íorm oí
oconom|c mu|u|so wh|ch |s |||o|y lo bo roíocloo |n |owor
ussol pr|cos. Al u moro m|cro |ovo|. lho oqu|l|os oí
oxporlors shou|o poríorm bollor lhun lhoso oí |mporlors.
Shou|o sl|mu|ul|no lho oconomy roqu|ro oovornmonl oobl
lo orow lo un unsuslu|nub|o |ovo|. lhon wo wou|o huvo lho
prospocl oí sovoro|on ooíuu|l or hypor|níul|on. E|lhor oí
lhoso wou|o bo |nlonso|y buo íor ussol rolurns. |nc|uo|no
sovoro|on oobl. (ll |s probub|y bosl lo ussumo lhul
|níul|on-||n|oo bonos wou|o bo ooíuu|loo on |n
hypor|níul|on.) ll |s poss|b|o. bul nol corlu|n. lhul oo|o
wou|o ucl us u hoooo uou|nsl lhoso r|s|s. purl|cu|ur|y
us lhoy wou|o |ncrouso lho |||o||hooo oí u rolurn lo u
oo|o slunouro.
1PMJUJDBMBOEPUIFS
Our lh|ro culooory oí oxlromo r|s|s compr|sos lhoso
wh|ch oo nol huvo ínunc|u| or oconom|c cuusos. Mosl
oor|vo írom po||l|cs (po||cy ooc|s|ons) bul wo |nc|uoo
c||mulo chunoo uno ||||or punoom|cs.
As u consoquonco. wo slross lhul lhoro |s u vory h|oh
oooroo oí uncorlu|nly ulluch|no lo uny osl|mulo oí lho
|||o||hooo oí occurronco. Thoy w||| u|so lono lo bo much
huroor lo mon|lor uno proo|cl - w|lh lho oxcopl|on.
porhups. oí prolocl|on|sm (ousy lo soo huppon|no uno lho
consoquoncos uro wo|| unoorslooo).
ln mosl cusos. lhoso r|s|s w||| bo huro lo hoooo. For
oxump|o. hooo|no lho brou|-up oí lho ouro muy |nvo|vo
lho uso oí croo|l ooíuu|l swups (CDS) conlrucls. wh|ch
|nlroouco o|ííoronl r|s|s. Aoo|no íooo uno wulor oxposuro
lo u porlío||o muy hoooo c||mulo chunoo (uno ul u p|nch.
wur) bul m|ohl run lho r|s| oí coníscul|on |n proc|so|y lho
c|rcumsluncos |n wh|ch lhoy bocumo mosl vu|uub|o.
)PXMJLFMZ)PXCBE
Huv|no br|oíy cons|ooroo lho r|s| culooor|os. lho obv|ous
quosl|ons bocomo 'how |||o|y?' uno 'how buo?' Tho
lochn|cu||y corrocl unswor lo lhoso quosl|ons |s 'wo oon'l
|now'. Thul su|o. wo mu|o somo íurlhor commonls |n lho
uppono|x. uno wo summur|so our sub|ocl|vo v|ows |n
F|ouro 1.
3

Risk
kvfh
aerhig
Impact Low Very low Very, very low
F
i
n
a
n
c
i
a
l
High
Medium
Excessive
leverage
Banking crisis
Low Insurance crisis
E
c
o
n
o
m
i
c
High Depression Hyperinfation
Medium Currency crisis Sovereign default
Low End of fat money
P
o
l
i
t
i
c
a
l
High Climate change End of capitalism
Medium Political crisis Disunity in Europe Major war
Low Protectionism Killer pandemic
||aare ¡
|
|\l(eme (|s|s · |||e|||aa1 ±s1 |ms±tl
Risk
Low Could be expected
once every 10 years
from current conditions
Very low Could be expected
once every 20 years
from current conditions
Very, very low Could be expected
once every 100 years
from current conditions
Impact
High Direct and signifcant
impact on most asset
and liability values
Medium Direct and material
impact on some asset
and liability values
Low Direct impact on
few values, variable
signifcance
Rulhor lhun ullompl lo o|vo ouch r|s| u probub|||ly (lho
quunl|lul|vo roulo). wo uss|on lhom ono oí lhroo r|s|
culooor|os - '|ow'. 'vory |ow' uno 'vory. vory |ow'. Euch
culooory hus u ru|o oí lhumb íor lho |||o||hooo oí
occurronco oí 1:1C. 1:2C uno 1:1CC rospocl|vo|y. (For lho
lochn|cu||y m|nooo. lh|s cun bo lhouohl oí us ooscr|b|no u
h|oh u|phu powor |uw íor lho o|slr|bul|on uno |mp||os wo
bo||ovo lhoso ovonls shou|o bo cons|ooroo íur moro |||o|y
lhun |í u Ñormu| o|slr|bul|on woro usoo.)
Wo u|so uss|on ouch r|s| lo un |mpucl culooory: h|oh
|mp||os u s|on|ícunl |mpucl on mosl ussol uno ||ub|||ly
vu|uos. moo|um u mulor|u| |mpucl on somo vu|uos. uno
|ow un |mpucl on u íow vu|uos whoro lho s|on|ícunco
cou|o vury.
3BOLJOH
Wo uso u sub|ocl|vo scor|no syslom lo oor|vo u run||no oí
lhoso r|s|s (soo F|ouro 2 ovor|ouí). Tho scor|no comb|nos
lho |mpucl uno lho r|s| looolhor w|lh lho oooroo oí
uncorlu|nly |n ussoss|no lho r|s|. For oxump|o. wo uro
much |oss coníoonl |n uss|on|no u probub|||ly lo u mu|or
wur lhun wo uro lo un |nsurunco cr|s|s.
Assum|no lh|s upprouch hus mor|l. lho run||no sorvos us
u pr|or|ly ||sl íor cons|oor|no lho vur|ous r|s|s uno wholhor
uny porlío||o hooo|no ucl|v|ly cou|o bo or shou|o bo
unoorlu|on. Th|s shou|o bo soon us pruomul|sm us. oí
courso. ho||sl|c r|s| munuoomonl shou|o cons|oor u|| r|s|s
(|nc|uo|no lhoso wo oo nol o|scuss horo).
Wo u|so show un 'ussoc|ul|on' mulr|x (soo F|ouro 3
ovor|ouí). Wo uso lho lorm 'ussoc|ul|on' rulhor lhun
corro|ul|on lo commun|culo lhul lh|s |s u quu||lul|vo
ussossmonl oí wholhor ovonls uro |||o|y lo occur looolhor
(w|lh ono porhups bo|no u m|nor or mu|or cuuso oí lho
olhor) rulhor lhun u quunl|lul|vo ussossmonl oí pusl oulu.
Tho mulr|x usos u co|our (uno |ollor) cooo lo |no|culo lho
oooroo oí ussoc|ul|on. Th|s c|our|y |no|culos lhul wo soo
lho ínunc|u| r|s|s uno sovoru| oí lho oconom|c r|s|s lo bo
vory c|oso|y ussoc|uloo. For somo oí lhom lho cuusu||ly
cou|o run |n o|lhor o|rocl|on. bul |n uny cuso |í ono woro lo
occur |l wou|o mulor|u||y ru|so lho r|s| oí olhors occur|no.
4
||aare I
|
|\l(eme (|s|s · (±s||sa
Risk ranking* as at 30 June 2009
Rank Risk Description Possible hedge
**1 Depression Debt-defation trap; falling growth and incomes
Globally-diversifed long-dated Sovereign
nominal bonds
2 Hyperinfation Extremely high infation
Real assets, for example gold,
globally-diversifed infation-linked bonds
**3 Excessive leverage Debt burden cannot be serviced from income Gold, reserve-status currency
**4 Currency crisis Extreme movement between foating rates Gold, foreign assets
**5 Banking crisis Balance sheets cannot absorb another shock
Nominal sovereign bonds (medium
duration)
6 Sovereign default Default by a developed country on its debt Country insurance (for example CDS)
7 Climate change Diversion of capital to mitigation uses No general hedge
8 Political crisis Rise in power of extremist groups No obvious hedge
**9 Insurance crisis Insolvency within insurance sector
Nominal sovereign bonds (medium
duration); short insurance equity
10 Protectionism Reversal of movement towards free trade No general hedge
11 Disunity in Europe Break-up of the euro Long Germany (hedged)
12 End of capitalism Move to socialism and closing of markets Gold
13 End of fat money Return to a gold standard Gold
14 War A major global confict Long neutral countries
15 Killer pandemic Contagious disease with very high mortality
Long pharmaceutical equities,
short airline equities
* Our sub|ocl|vo mousuro busoo on lho |mpucl. lho r|s| uno lho oooroo oí uncorlu|nly |n ussoss|no lho r|s| |ovo|.
** Wo uro moro coníoonl |n bo|no ub|o lo ulluch u probub|||ly lo lhoso ovonls.
A socono c|uslor cun bo soon bolwoon lho po||l|cu| uno
oconom|c r|s|s. |no|cul|no lhul our oconom|c wo||bo|no
w||| bo slrono|y |níuoncoo by po||l|cu| oovo|opmonls. For
oxump|o. wo ussoss lhul prolocl|on|sm uno oopross|on
huvo u h|oh ussoc|ul|on. Tho pr|mury cuusu||ly |s |||o|y lo
run írom oopross|on lo prolocl|on|sm bul wo wou|o u|so
urouo lhoro |s u wou| cuusu||ly |n lho olhor o|rocl|on. |n
lhul oroulor prolocl|on|sm wou|o wou|on oconom|c
orowlh uno |ncrouso lho r|s| oí oopross|on.
A|so c|our írom lho mulr|x |s lhul c||mulo chunoo uno ||||or
punoom|c uro lru|y |nooponoonl r|s|s. Thoy muy bo
|ooso|y ro|uloo (u hollor c||mulo bo|no u bollor brooo|no
orouno íor buos. porhups) bul olhorw|so on|y |nlorsocl
w|lh po||l|cu| cr|s|s (whoro lho cuusu||ly cou|o conco|vub|y
wor| o|lhor wuy).
)FEHJOH
As noloo ubovo. lh|s pupor uoorossos lho quu||lul|vo
uspocls oí oxlromo r|s|s uno so our commonls on
hooo|no uro |opl lo u h|oh |ovo|. Furlhor wor| wou|o bo
nocossury lo oslub||sh lho |||o|y cosls uno bonoíls íor
hooo|no ucl|on |n u spoc|íc conloxl.
Tho írsl obsorvul|on |s lhul nol u|| oí lhoso oxlromo
r|s|s cun bo hooooo or uny hoooo usoo |s |||o|y lo bo
vory |mproc|so. For oxump|o. |n lho uppono|x wo nolo
lhul lho oulcomo oí u ||||or punoom|c |s h|oh|y uncorlu|n
- whul proporl|on oí lho popu|ul|on wou|o |l ||||? Whul
uoo oroup wou|o suííor o|sproporl|onulo|y? - uno
lhoroíoro lho |mpucl on ussols uno ||ub|||l|os |s
un|nowub|o.
Our socono obsorvul|on wou|o bo lhul |l w||| bo
nocossury lo ooc|oo how oííocl|vo you wunl lho hoooo
lo bo. To oxp|u|n. |í lho buo ovonl huppons wou|o you
wunl lo bo |oíl íu||y íunooo. or wou|o you bo huppy |í you
huo 1C por conl oí your ussols |oíl? Tho socono opl|on
|s much ous|or lo uch|ovo lhun lho írsl. us you wou|o
s|mp|y movo suy. 1C por conl oí your porlío||o |nlo u
hooo|no ussol (wo br|oíy u||uooo lo oo|o uno h|oh
quu||ly bonos íor somo oí lho r|s|s) - wo ussumo lho
olhor ussols bocomo worlh|oss.
5
Excessive leverage
Banking crisis H
Insurance crisis H M
Depression H H M
Currency crisis H H L H
Sovereign default H H M H M
Hyperinfation L H L
End of fat money L M L H
Protectionism L H M L
Political crisis M M H M H H L H
Disunity in Europe L H L H H H H H
End capitalism L M L L M L H
Climate change M
Killer pandemic L L
War L L L L H L H L
Lev Bank Ins Dep Ccy Def Hyp Fiat Prot Pol Eur End Clim Pan War
||aare l
|
'|ssat|±l|as' m±l(|\
H High degree of association. Could be causality in both directions
M Medium degree of association. Could be causality in one direction
L Low degree of association. A possible contributing, rather than casual, factor
No, or very low, association
Wo uso lho lorm 'ussoc|ul|on' rulhor lhun corro|ul|on lo
commun|culo lhul lh|s |s u quu||lul|vo ussossmonl oí wholhor
ovonls uro |||o|y lo occur looolhor (w|lh ono porhups bo|no u
m|nor or mu|or cuuso oí lho olhor) rulhor lhun u quunl|lul|vo
ussossmonl oí pusl oulu. Ouunl|lul|vo ussossmonl oí ruro ovonls
|s o|íícu|l.
Moro comp|olo hooo|no |ncrousos lho comp|ox|ly |n u
numbor oí wuys:
„ Tho curry|no cosl oí lho hoooo |s |||o|y lo bo h|ohor.
„ ll |s u|mosl corlu|n lo roqu|ro lho uso oí oor|vul|vos. uno
lhoroíoro lhouohl nooos lo bo o|von lo wholhor lho
counlorpurly wou|o bo w||||no uno ub|o lo puy oul |í lho
buo ovonl hupponoo.
„ As Koynos wurnoo. |l |s bollor lo íu|| convonl|onu||y
lhun lo succooo unconvonl|onu||y. lí u s|no|o. or u íow.
|nsl|lul|onu| |nvoslors bocomo 'supor r|ch' ro|ul|vo lo
olhors lhrouoh succossíu| hooo|no. lhoro wou|o bo u
ounoor lhul |l/lhoy wou|o bo lurools íor spoc|u| |ov|os.
luxul|on uno/or coníscul|on.
Thul su|o. oor|vul|vos prov|oo much oroulor íox|b|||ly
uno moro proc|so lurool|no oí r|s|s. Thoy u|so oo
nol roqu|ro much cup|lu|. |ouv|no lho bu|| oí lho
porlío||o unlouchoo.
$PODMVTJPO
lnvoslors w||| (usuu||y) bo hupp|osl |n por|oos oí slronoor
oconom|c orowlh. whon lho rolurn on ussols |s |||o|y lo bo
h|ohosl. ln lh|s pupor wo huvo |oonl|íoo u numbor oí r|s|s
lhul cou|o |nlorrupl íuluro orowlh uno huvo br|oíy noloo
how o|ííoronl ussols muy íuro |n lho o|ííoronl ovonls.
CuvoKu| Rosourch íroquonl|y lu|| oí lho 'ívo oouo|y s|ns¨
whon |l comos lo oconom|c orowlh: (1) prolocl|on|sm. (2)
|ncrousos |n roou|ul|on. (3) monolury po||cy m|slu|os. (4)
|ncrousos |n luxul|on uno (5) wur
1
. Wo huvo covoroo lho
írsl uno |usl |n lh|s pupor. Tho romu|n|no lhroo uro pub||c
po||cy |ssuos uno w||| bolh |níuonco lho r|s|s |oonl|íoo |n
lh|s pupor uno bo shupoo by lho sh|íl|no |||o||hooo oí lho
o|ííoronl r|s|s lhrouoh l|mo. Wo w||| cons|oor pub||c po||cy
|ssuos |n oroulor oolu|| |n u íuluro pupor.
Wh||o lho r|s|s |oonl|íoo |n lh|s pupor uro romolo. lho
|mpucl on porlío||os |í lhoy o|o occur wou|o bo s|on|ícunl.
Wo bo||ovo lho roconl cr|s|s hus shown lhul r|s|
munuoomonl busoo so|o|y on vo|ul|||ly (wh|ch |nc|uoos
vuR
95
) |s nol suííc|onl. Wo u|so nooo lo bo uwuro oí r|s|
|n lho oxlromos. Wo wou|o bo huppy lo o|scuss poss|b|o
mon|lor|no or hooo|no urrunoomonls su|lub|o íor
purl|cu|ur c||onl conloxls.
1
For oxump|o. CuvoKu| Du||y roporl. 3C Ñovombor 2CC5.
6
&YUSFNFWBMVFUIFPSZ
Exlromo vu|uo lhoory (EvT) |s u spoc|u||sl brunch oí
slul|sl|cs lhul ullompls lo mu|o uso oí whul ||ll|o
|níormul|on lhoro |s concorn|no oxlromo oulcomos.
(By ooín|l|on. lhoy oo nol occur vory oílon. so lhoro
|s ||ll|o h|slor|cu| |níormul|on.)
ln muny rospocls |l |s u íormu||sul|on oí lho wor| oí
ucluur|os |n lho |nsurunco ío|o. who huvo |ono huo
lo ullompl u quunl|ícul|on oí culuslroph|c |oss.
A |oy compononl oí EvT |s lho oxlromo vu|uo
lhoorom. wh|ch |s u coro||ury oí lho conlru| ||m|l
lhoorom. (Tho o|slr|bul|on oí lho uvoruoos oí
sump|os írom u popu|ul|on w||| lono lowuros u
Ñormu| o|slr|bul|on. |rrospocl|vo oí lho shupo oí lho
popu|ul|on o|slr|bul|on.) ln u s|m||ur wuy. lho oxlromo
vu|uo lhoorom shows lhul lhoro uro lhroo wuys u
lu|| cun oocuy. Know|oooo oí lho oonoru| proporl|os
oí lho sub|ocl bo|no sluo|oo u||ows lho so|ocl|on oí
lho uppropr|ulo lu|| o|slr|bul|on. Choos|no u
o|slr|bul|on íor lho lu|| so|vos lho puuc|ly oí
h|slor|cu| oulu prob|om.
Thul |s lho lhoory. ln prucl|co. |l |s |||o|y lhul moro
lhun ono lu|| o|slr|bul|on |s cons|slonl w|lh lho
h|slor|cu| oulu uno lhoroíoro u cho|co hus lo bo
muoo. Tho ono lh|no wo |now uboul lhul cho|co |s
lhul |l w||| y|o|o vory o|ííoronl probub|||l|os íor lho
occurronco oí lho oxlromo ovonl - wh|ch ono |s
corrocl? Wo oo nol lh|n| |l |s poss|b|o lo |now.
ln uoo|l|on. moro soph|sl|culoo mooo|s roqu|ro moro
|npul |n lorms oí purumolors. Wo uro lhon buc| lo
lho prob|om oí o|lhor us|no u vory smu|| h|slor|cu|
oulu sol lo oor|vo lho purumolor vu|uos. or wo musl
uso sub|ocl|v|ly. ll |s nol c|our lhul lho rosu|ls w|||
nocossur||y bo supor|or lo us|no u s|mp|o mooo| w|lh
u sub|ocl|vo ovor|uy.
Howovor. uno us un us|oo. lho ío|o oí EvT hus
u|rouoy lhrown up somo |nlorosl|no íno|nos. For
oxump|o. lhoro |s somo ov|oonco lhul íor oqu|ly
mur|ols lho nooul|vo lu||s uro slul|sl|cu||y
s|on|ícunl|y íullor lhun pos|l|vo lu||s. (Th|s |s nol
lho cuso íor u|| counlr|os. uno lho oííocl |s moro
pronouncoo íor omoro|no mur|ols lhun
oovo|opoo mur|ols.)
2
2
LoBuron. B|u|o D uno Sumunlu. R|l|rupu. Exlromo vu|uo Thoory
uno Ful Tu||s |n Equ|ly Mur|ols (Ñovombor 2CC5). Avu||ub|o ul
SSRÑ: hllp://ssrn.com/ubslrucl=873656
8BUTPO8ZBUU-JNJUFE
*OWFTUNFOU$POTVMUJOH
5IJOLJOH"IFBE
Th|s url|c|o |s wr|llon by mombors oí our Th|n||no Ahouo
Croup (TAC). who uro purl oí lho lnvoslmonl Prucl|co ul
Wulson Wyull. Tho|r ro|o |s lo |oonl|íy uno oovo|op now
|nvoslmonl lh|n||no uno opporlun|l|os nol nuluru||y
covoroo unoor mu|nslroum rosourch. Thoy soo| lo
oncouruoo now wuys oí soo|no lho |nvoslmonl
onv|ronmonl |n wuys lhul uoo vu|uo lo our c||onls.
Tho conlonls oí |no|v|ouu| url|c|os uro lhoroíoro moro
|||o|y lo bo lho op|n|ons oí lho rospocl|vo uulhor(s) rulhor
lhun nocossur||y roprosonl|no lho íormu| v|ow oí lho írm.
Ño ucl|on shou|o bo lu|on on lho bus|s oí uny url|c|o
w|lhoul soo||no spoc|íc uov|co. lí you wou|o |||o lo
o|scuss uny oí lho urous covoroo |n moro oolu||. p|ouso
ool |n louch w|lh o|lhor lho uulhor(s) or lho consu|lunl
who normu||y uov|sos you ul Wulson Wyull or:
Curo|o Juoo
+44 (C) 1737 274329
curo|o.|uoo©wulsonwyull.com
7
.BKPSCBOLJOHDSJTJT
W|±l |s l||s e\l(eme (|s|°
Th|s r|s| |mp||os lhul oovornmonl ucl|on so íur hus
boon |nsuííc|onl lo socuro lho bun|s uou|nsl poss|b|o
íuluro oovo|opmonls.
Dovo|opmonls lhul cou|o lhroulon íuluro bun| so|voncy
cou|o |nc|uoo: (1) u conl|nuoo orop |n rou| oslulo pr|cos.
(2) |ncrousoo corporulo ooíuu|ls uno (3) poor oconom|c
cono|l|ons |n oonoru|.
W|±l ±(e l|e tasse|aestes°
Tho rosponso |s h|oh|y |||o|y lo bo lho sumo us soon
roconl|y: u so|zuro w|lh|n lho ínunc|u| mur|ols
lr|ooor|no u í|ohl lo suíoly: u sw|íl lrunsm|ss|on lo lho
rou| oconomy lhroulon|no lruoo uno bus|nossos:
rooucoo oconom|c orowlh us lho uvu||ub|||ly oí croo|l
ovuporulos: uno lho poss|b|||ly oí oopross|on.
Tho poss|b|||ly oí nul|onu||sul|on oí lho bun|s wou|o bo
oroulor. Howovor lho |ssuo wou|o lhon bo lho slulo oí
oovornmonl ínuncos ul lhul po|nl |n l|mo. uno
lhoroíoro wholhor lh|s ucl|on wus poss|b|o w|lhoul
lr|ooor|no ono oí lho olhor (oconom|c) r|s|s (íor
oxump|o. sovoro|on ooíuu|l) |oonl|íoo |n lh|s pupor.
*OTVSBODFDSJTJT
W|±l |s l||s e\l(eme (|s|°
Th|s r|s| |s lho |nso|voncy oí lho |nsurunco
|nouslry - lhul |s. lho ussols uro (bocomo) smu||or lhun
lho ||ub|||l|os. Th|s cou|o occur lhrouoh |nuooquulo
cup|lu||sul|on oí r|s|y ussol pos|l|ons (lho vu|uo oí r|s|y
ussols íu|| moro lhun unl|c|puloo uno oo nol rocovor)
or lhrouoh 'bus|s' r|s| (lho suío ussols ho|o uou|nsl
lho ||ub|||l|os unoorporíorm. íor oxump|o lhrouoh
sovoro|on ooíuu|l).
W|±l ±(e l|e tasse|aestes°
Wo wou|o oxpocl u s|m||ur unío|o|no oí ovonls lo lhul
oí lho roconl bun||no cr|s|s. numo|y 'slrono' |nsurors
wou|o bo oncouruooo lo lu|o ovor íu|||no |nsurors.
Fu|||no lhul. oovornmonls wou|o prov|oo somo íorm oí
buc|slop (|í ub|o lo). C|von |ls nuluro. |nsurunco |s moro
|||o|y lo bo uííocloo lhun non-||ío. Tho mu|n
consoquonco wou|o bo |owor roco|pls by lho pr|vulo
soclor (pons|ons. suv|nos p|uns. uno so on) uno
lhoroíoro |owor consumpl|on.
&YDFTTJWFMFWFSBHF
W|±l |s l||s e\l(eme (|s|°
Tho uso oí |ovoruoo |s usoíu| íor soc|oly |n lhul |l u||ows
cup|lu|-conslru|noo onlropronours lo conlr|bulo lo
oconom|c orowlh. Howovor. |l |s now c|our lhul lhoro |s
somo |ovo| oí |ovoruoo lhul |s opl|mu|. uno |ovoruoo
boyono lh|s |mp||os u 'soc|u| |oss'.
Tho r|s| |s lhul lho uso oí |ovoruoo |n lho who|o soc|oly
oxcooos u suslu|nub|o |ovo| boyono wh|ch lho oobl
cun no |onoor bo sorv|coo írom |ncomo (or no suíoly
muro|n ox|sls). wh|ch lr|ooors u so|í-ro|níorc|no íu|| |n
ussol vu|uos.
Wo now huvo pub||c soclors |ncrous|no lho|r |ovoruoo
(oobl lo CDP rul|os) uno so bo||ovo lho r|s| oí
oxcoss|vo oobl w||| pors|sl íor u numbor oí yours.
W|±l ±(e l|e tasse|aestes°
Excoss|vo |ovoruoo lyp|cu||y occurs w|lh spocu|ul|on.
whoro lho |nlonl|on |s lo puy buc| lho oobl whon lho
spocu|ul|vo ussol hus boon so|o íor u h|ohor pr|co. Tho
r|s| |s '|ulonl' |n lhul oobl cun romu|n loo h|oh. bul
sorv|coub|o. prov|ooo lhul ussol pr|cos oo nol ooc||no.
Ñovorlho|oss. íu|||no ussol pr|cos cun lr|ooor u
so|í-ro|níorc|no cyc|o uno |l |s nol uulomul|cu||y
poss|b|o lo roouco |ovoruoo ovon |í oos|roo. Th|s wou|o
cuuso lho ínunc|u| mur|ols lo slop íuncl|on|no.
lr|ooor|no u s|m||ur roucl|on |n lho rou| oconomy lo lho
ono wo huvo |usl soon - íu|||no orowlh. omp|oymonl
uno |ncomos uno lho poss|b|||ly oí oopross|on.
'JOBODJBM
"QQFOEJY
8
%FQSFTTJPO
W|±l |s l||s e\l(eme (|s|°
Thoro |s no slunouro ooín|l|on oí u oopross|on.
u|lhouoh |l |s oonoru||y lu|on lo bo u ooop uno
prolrucloo lrouoh |n oulpul/CDP.
Tho curronl r|s| oí oopross|on uppours lo huvo boon
rooucoo lhrouoh po||cy ucl|on. bul romu|ns un oxlromo
r|s|. |n lhul |l muy nol bo poss|b|o íor oovornmonls
lo counlorucl uny íuluro orop |n oomuno. shou|o
lhul occur.
Thoro hus boon un oxlonooo por|oo oí ovor-
consumpl|on (by Woslorn consumors) moun|no lhul
bus|nossos huvo bu||l prooucl|vo cupuc|ly lo sul|síy u
|ovo| oí oomuno lhul |s un|||o|y lo bo rouchoo íor u
numbor oí yours. us Woslorn housoho|os |ncrouso lho|r
suv|nos rulo.
W|±l ±(e l|e tasse|aestes°
Tho pr|mury consoquonco oí u oopross|on |s lyp|cu||y u
shurp uno pro|onooo |ncrouso |n unomp|oymonl. (Tho
ooplh oí lho lrouoh mouns lhul u |ono por|oo oí
rocovory |s roqu|roo boíoro lhoro |s prossuro lo h|ro
now wor|ors.) Tho subs|o|ury oííocls uro lhoroíoro u
orop |n consumpl|on. roslr|cl|on oí croo|l. shr|n||no
oulpul uno |nvoslmonl uno numorous bun|ruplc|os.
Dopross|ons cun lr|ooor ooíul|on or hypor|níul|on.
uoo|no íurlhor comp||cul|on.
Excoss|vo |ovoruoo cun |nlorucl w|lh oopross|on -
u so|í-ro|níorc|no íu|| |n ussol vu|uos cun cuuso
íurlhor ooíuu|ls. bun|ruplc|os. íu|||no |ncomos
uno r|s|no unomp|oymonl. cuus|no or pro|ono|no
oconom|c oopross|on.
$VSSFODZDSJTJT
W|±l |s l||s e\l(eme (|s|°
'Curroncy cr|s|s' |s un u|lornul|vo lorm íor 'bu|unco oí
puymonl cr|s|s' uno |s lhoroíoro. lochn|cu||y. lho
brou||no oí u íxoo oxchunoo rulo. ln u |oosor sonso. |l
cun u|so moun un oxpoclul|on oí u s|on|ícunl so|í-
íu|í|||no oovu|uul|on.
loou||y oconom|c munuoomonl |s usoo lo mu|nlu|n
bu|unco. Th|s cou|o bo lhrouoh po||c|os lo mu|o
oomosl|c bus|noss moro oííc|onl (ru|s|no oxporls) or
chuno|no |nlorosl rulos lo ullrucl/oolor cup|lu| |níows.
Thoroíoro lho movomonl |n lho oxchunoo rulo cun bo
lhouohl oí us u suíoly vu|vo lhul huo lo b|ow bocuuso
olhor (pu|níu|) oconom|c uo|uslmonls woro nol muoo -
íor oxump|o. ru|s|no |nlorosl rulos uno/or luxos. For u
íxoo oxchunoo rulo. lh|s w||| occur whon lho conlru|
bun| runs oul oí rosorvos uno cun no |onoor ooíono
lho oxchunoo rulo.
W|±l ±(e l|e tasse|aestes°
A curroncy co||upso sovoro|y rooucos u counlry's
purchus|no powor uno honco wou|lh.
To lho oxlonl lhul oomosl|c borrow|no hus occurroo |n
íoro|on curronc|os. lho cosl oí sorv|c|no lhul oobl w|||
r|so orumul|cu||y. uno honco |mmoo|ulo|y |ncrouso lho
r|s| oí ooíuu|l.
Tho o|rocl |mpucl on ussol rolurns |s lhrouoh lho
curroncy - oomosl|c |nvoslmonl |n oomosl|c ussols w|||
bo unuííocloo: oomosl|c |nvoslmonl |n íoro|on ussols
w||| bonoíl subslunl|u||y |í unhooooo: |nvoslmonl by
íoro|onors |n oomosl|c ussols. |í unhooooo. w||| suííor
vory poor rolurns. Tho |no|rocl oííocls uro moro
comp||culoo us lho cr|s|s w||| on|y huvo occurroo
bocuuso oí somo unoor|y|no oconom|c |mbu|unco.
&DPOPNJD
9
)ZQFSJOnBUJPO
W|±l |s l||s e\l(eme (|s|°
ln oconom|cs. hypor|níul|on |s |níul|on lhul |s vory h|oh
or 'oul oí conlro|'. u cono|l|on |n wh|ch pr|cos |ncrouso
rup|o|y us monoy |osos |ls vu|uo. Doín|l|ons usoo by lho
moo|u vury írom u cumu|ul|vo |níul|on rulo ovor lhroo
yours upprouch|no 1CC por conl lo '|níul|on oxcooo|no
5C por conl u monlh'. As u ru|o oí lhumb. hypor|níul|on
|s oílon roporloo íor shorl |nlorvu|s. oílon por monlh.
A|lhouoh lhoro |s oobulo uboul lho rool cuusos oí
hypor|níul|on. |l bocomos v|s|b|o whon lhoro |s un
unchoc|oo |ncrouso |n lho monoy supp|y. usuu||y
uccompun|oo by u w|oosprouo unw||||nonoss lo ho|o
lho monoy íor moro lhun lho l|mo nooooo lo lruoo |l íor
somolh|no luno|b|o lo uvo|o íurlhor |oss.
W|±l ±(e l|e tasse|aestes°
Hypor|níul|on w|pos oul lho purchus|no powor oí
suv|nos. provo|os oxlromo consumpl|on uno houro|no
oí rou| ussols. cuusos lho monolury buso lo íoo lho
counlry. uno |nvoslmonl cousos. H|slor|cu||y. lhoro huvo
boon numorous op|sooos oí hypor|níul|on |n vur|ous
counlr|os. ío||owoo by u rolurn lo 'huro monoy' (somo
íorm oí non-oovu|u|no moo|um oí oxchunoo).
Hypor|níul|on |s oílon ussoc|uloo w|lh wurs (or lho|r
uílormulh). oconom|c oopross|ons uno po||l|cu| or
soc|u| uphouvu|s.
Tho oonoru| popu|ul|on proíors lo |oop |ls wou|lh |n
non-monolury ussols or |n u ro|ul|vo|y slub|o íoro|on
curroncy. Amounls oí |ocu| curroncy ho|o uro
|mmoo|ulo|y |nvosloo lo mu|nlu|n purchus|no powor.
Pr|cos muy bo quoloo |n u íoro|on curroncy.
4PWFSFJHOEFGBVMU
W|±l |s l||s e\l(eme (|s|°
Sovoro|on ooíuu|l |s lho non-puymonl oí |nlorosl or
rolurn oí pr|nc|pu| by u sovoro|on borrowor. Thoro |s
concorn uboul lho curronl s|zo oí buoool ooíc|ls uno
honco sovoro|on oobl |ssuunco. Howovor pub||c oobl |s
slurl|no írom u ro|ul|vo|y |ow proporl|on oí CDP uno
whul mullors |s lho shupo oí lho oobl-lo-CDP
lru|oclory. Much bollor |s u rup|o |ncrouso lhul íullons
oíí uno lhon íu||s us oconom|c orowlh rosumos
u||ow|no lho oovornmonl lo robu||o |ls bu|unco shool.
Tho buo sconur|o |s u rul|o lhul conl|nuos lo r|so
bocuuso oconom|c orowlh romu|ns muloo.
Wo bo||ovo sovoro|on ooíuu|l |s moro |||o|y |í oconom|c
orowlh romu|ns sluc| ul u |ow |ovo|: |í luxos uro nol or
cunnol bo |ncrousoo: uno |í oovornmonls oo nol (or
cunnol) roouco spono|no. Tho |||o||hooo u|so |ncrousos
whon lho luxos uro pu|o by wor|ors who oo nol bo||ovo
|l |s lho|r |ssuo (lho noxl oonorul|on).
W|±l ±(e l|e tasse|aestes°
D|rocl|y. lho ooíuu|l|no borrowor bonoíls uno hus moro
monoy lo spono on consumpl|on. Tho |onoor
pormunonl|y |osos lhul cup|lu|.
Moro |no|rocl|y. lho cosls ussoc|uloo w|lh sovoro|on
ooíuu|l íu|| |nlo lwo brouo lypos - ponu|ly cosls uno
oulpul cosls. Ponu|l|os uro upp||oo by oxlornu| croo|lors
on lho cosl or ub|||ly oí ooíuu|lors lo uccoss íuluro
ínunco. So |ncrous|no consumpl|on loouy muy bo ul
lho oxponso oí roouc|no consumpl|on lomorrow.
Oulpul cosls roíor lo lho orop |n prooucl|on uno
lhoroíoro consumpl|on oí lho ooíuu|l|no nul|on. As
oomosl|c bun|s lono lo bo |uroo ho|oors oí sovoro|on
oobl. purl|cu|ur|y |usl boíoro u ooíuu|l. lho ucl oí ooíuu|l
cun lr|ooor u bun||no cr|s|s uno lhoroíoro un oconom|c
cr|s|s. Pons|on íunos uno |nsurunco compun|os wou|o
u|so suííor.
1C
&OEPGmBUNPOFZ
W|±l |s l||s e\l(eme (|s|°
Th|s r|s| ro|ulos lo lho rolurn lo u oo|o slunouro whoro
lho pupor nolos oovornmonls |ssuo uro íroo|y
convorl|b|o lo prosol. íxoo quunl|l|os oí oo|o (or olhor
phys|cu| commoo|l|os). From u h|slor|cu| po|nl oí v|ow. u
ropouloo sh|íl|no bolwoon íul uno oo|o slunouros |s
normu|. (Tho Ün|loo Slulos hus ropouloo|y sh|íloo
bolwoon u íul uno oo|o slunouro ovor lho pusl
2CC yours.)
Wo oo nol onv|suoo u rolurn lo u oo|o slunouro |n lho
nour íuluro. Tho oscu|ul|no monoy croul|on urouno lho
o|obo |s curronl|y wor||no íu|r|y oííocl|vo|y lo provonl
unolhor oopross|on-|||o sconur|o. A|| oí lhoso oííorls
wou|o bocomo |mposs|b|o unoor u oo|o slunouro
slrucluro. Howovor. shou|o lhoso oííorls rosu|l |n r|s|no
|níul|on. lhon lho rolurn lo u oo|o slunouro wou|o huvo
u h|ohor probub|||ly |n íuluro.
W|±l ±(e l|e tasse|aestes°
As oconom|c ucl|v|ly vur|os ovor l|mo. lho monoy supp|y
shou|o u|so bo vury|no ovor l|mo. Ünoor u oo|o
slunouro. howovor. lho monoy supp|y |s so|o|y ||n|oo lo
oo|o prooucl|on. Conlru| bun|s huvo ||ll|o o|scrol|on lo
prolocl lho oconomy írom o|lhor u monolury shoc| (u
b|o o|scovory oí oo|o. cuus|no |níul|on) or u rou| shoc|.
Thoroíoro. oooos pr|cos uro |||o|y lo bo h|oh|y unslub|o
|n lho shorl lorm oosp|lo bo|no ro|ul|vo|y slub|o |n lho
|ono run. lí ovory counlry uooploo u oo|o slunouro.
oxchunoo rulos wou|o bocomo oííocl|vo|y íxoo.
moun|no lhul oooos pr|cos wou|o huvo lo uo|usl lo
chuno|no c|rcumsluncos |n counlr|os. Croulor
oconom|c vo|ul|||ly wou|o lono lo ru|so r|s| prom|u.
roouc|no lho rolurn on muny ussols.
1SPUFDUJPOJTN
W|±l |s l||s e\l(eme (|s|°
Prolocl|on|sm |s lho po||cy oí roslr|cl|no lruoo w|lh lho
u|m oí 'prolocl|no' bus|nossos uno wor|ors |n lho
oomosl|c oconomy írom lho íu|| íorco oí oxlornu|
compol|l|on. Prolocl|on|sm |s usuu||y |mp|omonloo
lhrouoh lur|íís or quolus. u|lhouoh lhoro uro vur|ous
olhor poss|b|o molhoos such us |oo|s|ul|on (íor
oxump|o. spoc|íy|no purl|cu|ur onv|ronmonlu| or olh|cu|
slunouros). subs|o|os uno oxchunoo rulo mun|pu|ul|on.
Tho prosonl concorn |s lhul shorl-lorm po||l|cu|
nocoss|ly (suv|no volos) cun ovorr|oo |ono-lorm
oconom|c |oo|c. Tho buso cuso |s prolocl|on|sm ul lho
muro|n. Tho oxlromo r|s| |s u popu||sl buc||ush uou|nsl
íroo lruoo.
W|±l ±(e l|e tasse|aestes°
Prolocl|on|sm lonos lo hurm lho poop|o |l |s |nlonooo
lo ho|p. Th|s ío||ows írom lho pr|nc|p|o oí compurul|vo
uovunluoo. unoor wh|ch counlr|os shou|o spoc|u||so |n
proouc|no corlu|n oooos or sorv|cos. Üs|no
prolocl|on|sm lo |nlorrupl lh|s procoss oí spoc|u||sul|on
|mposos |noííc|oncy (cosl) on lho oconomy pursu|no
prolocl|on|sm. lhoroby ||m|l|no omp|oymonl uno
oconom|c orowlh.
Sobor|no|y. prolocl|on|sm hus u|so boon uccusoo oí
bo|no ono oí lho mu|or cuusos oí wur. Morcunl|||sl
Europoun counlr|os woro oílon ul wur |n lho 17lh uno
18lh conlur|os: lho Amor|cun Rovo|ul|on wus pr|mur||y
ouo lo Br|l|sh lur|íís uno luxos: uno lho lwo Wor|o Wurs
ío||owoo por|oos oí prolocl|vo po||c|os.
1PMJUJDBMBOEPUIFS
11
1PMJUJDBMDSJTJT
W|±l |s l||s e\l(eme (|s|°
As purl oí lho o|obu| ínunc|u| cr|s|s uno oconom|c
consoquoncos. wo huvo soon lho r|so oí 'unory c|l|zons'.
Tho soc|u| unoor |n lho bosl uno mosl |||o|y cuso w||| bo
vonloo lhrouoh lho bu||ol box. For oxump|o. |n lho
o|ocl|ons íor lho Europoun pur||umonl |n Juno 2CC9.
ÜK volors o|ocloo lwo cuno|oulos írom u íusc|sl
purly - lho írsl souls ovor won by lhul purly.
Tho oxlromo r|s| íor oomocruc|os |s lhul lho |ovo| oí
unoor ovorwho|ms 'rouson'. o|v|no s|on|ícunl powor lo u
prolocl|on|sl po||l|cu| purly. For non-oomocruc|os. lho
r|s| |s u vonl|no oí lho unoor |n u moro v|o|onl munnor.
W|±l ±(e l|e tasse|aestes°
Tho |nvoslmonl |mp||cul|ons wou|o |||o|y runoo írom
|ns|on|ícunl lo m||o|y nooul|vo íor ussol rolurns.
oopono|no on lho oxlonl oí lho 'rovo|l'. Sor|ous nooul|vo
|mp||cul|ons wou|o bo conl|noonl on lho now po||l|cu|
powor bocom|no onlronchoo. lr|ooor|no olhor r|s|s
cons|ooroo |n lh|s pupor.
%JTVOJUZJO&VSPQF
W|±l |s l||s e\l(eme (|s|°
Tho curronl o|obu| oconom|c s|owoown hus ru|soo
lons|ons bolwoon ouro mombor counlr|os - pr|nc|pu||y
bolwoon lhoso w|lh curronl uccounl ooíc|ls wh|ch
wou|o proíor |ow |nlorosl rulos uno u |owor ouro. uno
lho rosl. Tho oxlonl oí oovu|uul|on roqu|roo lo uss|sl
lho ooíc|l counlr|os wou|o r|s| cuus|no vory h|oh
|níul|on |n Cormuny - nol po||l|cu||y íous|b|o. Tho
prospocl oí pormunonl |uroo íscu| lrunsíors írom lho
surp|us counlr|os |s u|so |||o|y lo bo po||l|cu||y
|níous|b|o. ll |ouvos u brou|-up oí lho ouro us un
oxlromo r|s|.
W|±l ±(e l|e tasse|aestes°
Louv|no lho ouro wou|o bo pu|níu| uno wou|o onlu||
|ossos íor somoono. As lhul 'somoono' cou|o/wou|o
|nc|uoo íoro|onors. porhups w|lhoruw|no írom lho ouro
wou|o bo proíorub|o lo |nlornu| oovu|uul|on. whoro lho
oomosl|c oconomy lu|os u|| lho pu|n?
Wo bo||ovo lhul lho v|onnu Convonl|on on lho Luw oí
Troul|os u||ows u w|lhoruw|no counlry lo rooonom|nulo
u|| |nlornu| oobl uno u|| sovoro|on oobl (|nc|uo|no
sovoro|on oobl ho|o by íoro|onors) |n lho now oomosl|c
curroncy. Th|s wou|o |mposo |ossos on íoro|on |onoors.
Pr|vulo oobl ho|o by íoro|onors wou|o bo moro o|íícu|l
uno probub|y ooc|ooo by |ono oruwn-oul |oou| cusos.
5IFFOEPGDBQJUBMJTN
W|±l |s l||s e\l(eme (|s|°
Cup|lu||sm's bus|c prom|so |s lhul lho pursu|l oí
so|í-|nlorosl uno lho r|ohl lo own pr|vulo proporly uro
moru||y ooíons|b|o uno |oou||y |oo|l|mulo. ln u puro
cup|lu||sl oconomy. lho mur|ol or|vos lho u||ocul|on oí
rosourcos uno uny oconom|c ooc|s|ons.
ln our v|ow. lho mosl |||o|y sconur|o |s mov|no u|ono
írom ono ono oí u spoclrum whoro mur|ol |s ||no
(m|n|mum roou|ul|on) lowuros lho olhor ono. whoro wo
cou|o soo moro onorous roou|ul|ons uno oovornmonl
|nlorvonl|on |n. uno conlro| oí. lho oconomy. Tho
oxlromo r|s|. howovor. |s lho oom|so oí lho cup|lu||sl
syslom uno lho ono oí lho mur|ol us lho pr|mury
mouns oí rosourco u||ocul|on.
W|±l ±(e l|e tasse|aestes°
Tho oconomy wou|o bo |||o|y lo run u h|ohor r|s| oí
íu||uro uno oconom|c orowlh wou|o bo s|uoo|sh |n lho
|ono run ouo lo |owor prooucl|v|ly. Conlru||y conlro||oo
oconom|os lono lo bo churuclor|soo by shorluoos.
wh|ch uro |nhoronl|y |níul|onury. Pr|vulo |nvoslmonl
ucl|v|l|os wou|o co||upso or ovon bo lorm|nuloo. Tho
ono oí cup|lu||sm |s s|mp|y lho u|l|mulo oxlromo r|s|.
Tho oconomy |s |||o|y lo bo ussoc|uloo w|lh oxlromo
uncorlu|nly uno u |uroo umounl oí wou|lh ooslrucl|on
our|no lho lruns|l|on por|oo. On conlomp|ul|no lho ono
oí cup|lu||sm. |nvoslors shou|o probub|y worry moro
uboul lho rolurn 'oí' lho|r |nvoslmonls lhun lho rolurn
'on' lho|r |nvoslmonls.
$MJNBUFDIBOHF
W|±l |s l||s e\l(eme (|s|°
Tho oxlromo r|s| |s lhul c||mulo chunoo |s rou| uno
huppons much íuslor lhun unyono oxpocls (or. ul |ousl.
íuslor lhun unyono |s propuroo íor).
Wh||o wo o|scuss |n olhor pupors lho poss|b|o
|nvoslmonl opporlun|l|os lhul muy ur|so. íor curronl
purposos lho mu|or |mp||cul|on |s u o|vors|on oí cup|lu|
írom oconom|cu||y prooucl|vo uso (oííor|no ullrucl|vo
rolurns) lo m|l|oul|no lho oííocls oí c||mulo chunoo.
W|±l ±(e l|e tasse|aestes°
Thoro |s vory ||ll|o uoroomonl on lho consoquoncos oí
c||mulo chunoo uno |l |s poss|b|o lhul lhoro wou|o bo
bonoíls íor somo counlr|os. ln lho conloxl oí lh|s
pupor howovor wo suooosl lho ío||ow|no polonl|u|
nooul|vo consoquoncos:
- u r|so |n sou |ovo|s. íooo|no |ow |y|no |uno
(oílon uor|cu|luru|) uno cuus|no slorm oumuoo lo
couslu| c|l|os
- rooucoo uvu||ub|||ly oí or|n||no wulor. us o|uc|ors
o|suppour uno |ow |y|no uqu|íors bocomo su||nuloo
- rooucoo uor|cu|luru| oulpul. ouo lo |uno |oss
uno su||nul|on
- u ounoor oí |ncrousoo coní|cl w|lh|n uno bolwoon
nul|ons ovor uccoss lo íooo uno wulor.
,JMMFSQBOEFNJD
W|±l |s l||s e\l(eme (|s|°
Tho curronl H1Ñ1 v|rus ('sw|no íu') wus o|von
punoom|c slulus by lho Wor|o Hou|lh Oroun|sul|on. Tho
r|s| wo cons|oor |s u v|rus w|lh s|m||ur conluo|on bul
much h|ohor ooulh rulos. A mu|or punoom|c wou|o
|níocl u |uroor proporl|on oí lho popu|ul|on lhun lyp|cu|
íu (25-5C por conl rulhor lhun 5-15 por conl) uno
huvo u ooulh rulo lhul wou|o bo u mu|l|p|o h|ohor
(normu| íu ||||s urouno C.1-C.3 por conl oí lhoso
|níocloo). A íurlhor o|ííoronco w|lh u ||||or punoom|c |s
lhul |l lonos lo |||| lhoso |n pr|mo hou|lh (uoos 2C-4C).
ouo lo un oxcoss|vo|y oííc|onl |mmuno syslom
rosponso (normu| íu lonos lo |||| lho o|o. lho |nírm uno
lho vory youno).
W|±l ±(e l|e tasse|aestes°
Assum|no u s|on|ícunl proporl|on oí lho younoor
wor|íorco o|oo. oulpul uno lhoroíoro consumpl|on
wou|o íu|| (CDP): bus|nossos wou|o bo |oíl w|lh
roounounl cupuc|ly: oovornmonl lux roco|pls wou|o íu||
(poss|b|y much íuslor lhun wo|íuro oxpono|luro). Equ|ly
rolurns wou|o suííor írom bolh cup|lu| ooslrucl|on
(roounounl cupuc|ly) uno |owor ourn|nos: corporulo
bono ooíuu|ls wou|o bo |||o|y lo r|so: sovoro|on y|o|os
cou|o r|so lo roíocl wou|or oovornmonl ínuncos.
8BS
W|±l |s l||s e\l(eme (|s|°
Armoo coní|cl on u smu|| scu|o |s common uno |ls
oconom|c |mpucl |s ||m|loo lo lho counlr|os |nvo|voo.
Tho oxlromo r|s| |s u mu|or wur lhul |nvo|vos sovoru|
mu|or oconom|os íor u pro|onooo por|oo.
Tho h|slory oí wur |s un |nsopurub|o purl oí humun
h|slory uno mu|or wurs cun huvo culuslroph|c |mpucls
on soc|ol|os uno oconom|os. Wor|o Wur ll run|s us
h|slory's worsl o|suslor by ooulh lo||. w|lh osl|muloo
||vos |osl bolwoon 6C uno 72 m||||on.
Tho |nvonl|on oí nuc|our uno b|o|oo|cu| woupons u|so
ru|sos lho poss|b|||ly lhul u íuluro mu|or wur cou|o pul
much oí lho humun ruco ul r|s|.
W|±l ±(e l|e tasse|aestes°
Tho mu|or consoquonco oí wur |s lho ooslrucl|on oí
cup|lu| - bolh phys|cu| cup|lu| us mun|l|ons oxp|ooo
uno oumuoo ox|sl|no |níruslrucluro. uno humun cup|lu|
wh|ch. ul bosl. |s o|vorloo írom prooucl|vo omp|oymonl
íor u numbor oí yours.
Tho wor|ow|oo ínunc|u| cosl oí Wor|o Wur ll |s
osl|muloo ul uboul ono lr||||on 1944 ÜS oo||urs. mu||no
|l lho mosl cosl|y wur |n cup|lu| us wo|| us ||vos.
S|m||ur lo u ||||or punoom|c. mu|or wur lonos lo ||||
lhoso |n pr|mo uoos (prooom|nunl|y mu|os). wh|ch
|ouvos u (much) rooucoo younoor wor|íorco buso uno
|n lurn rooucos oconom|c oulpul uno consumpl|on.
|al|a(|se1 ±s1 (eaa|±le1 |¡ l|e ||s±st|±| °e(.|tes |al|a(|l¡. Jtla|e( I111
© W±lsas W¡±ll ||m|le1 kel: I111·|K!·111ä1

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