|
Panel Detail:
Tuesday, April 25, 2006
2:10 PM - 3:25 PM
Global Risk: What Should Be Keeping You Up at Night
Speakers:
William Anderson,
National Intelligence Officer for Economics and Global Issues, National Intelligence Council
Wesley Clark,
General (ret.), U.S. Army; former Commander, NATO
George Hoguet,
Senior Portfolio Manager, Global Investment Strategist, State Street Global Advisors
Marc Miles,
Director, Center for International Trade and Economics, The Heritage Foundation
Moderator:
Joel Kurtzman, Senior Fellow, Milken Institute; Senior Advisor, Knowledge Universe
 |
|
Gen. Wesley Clark, left, tells attendees that the biggest threats to the U.S. are biological and nuclear. Listening is panelist George Hoguet.
|
|
The panel started with Joel Kutzman's introduction of the Milken Institute view on risks. He put risks into two types: low frequency with high impact, and high frequency with low impact. The first type includes abnormal natural catastrophes; the second can be corruption or failure of the legal system. It is actually the high-frequency, low-impact risk that causes the business world the most trouble, he said, and he noted that one of his greatest worries was that capital had been flowing into such countries as China, Brazil, Russia and India, which have enormous unpredictable risks.
William Anderson, from National Intelligence Council, looked at risks according to three aspects: importance, likelihood and timing. His greatest worries included avian flu and the risk of a terrorist attack. Gen. Wesley Clark agreed that biological threat was a major concern for the United States, as was the nuclear potential in the Middle East. U.S. involvement in Iraq signals an unstable equilibrium, he said, and it is hard to tell how long it will last.
Knowing how to manage one's portfolio in emerging countries under all kinds of risks is important, said George Hoguet of State Street Global Advisors, adding that the financial market is an efficient aggregator of information. The expectation of risks is absorbed by the market and reflected in prices or other indicators. However, extra attention should be drawn to the shape of the distribution of those risks, i.e., the probability of the risks. He pointed out risks that he considers particularly noteworthy: the high oil price that may slow down the world economic growth, the potential disorder associated with the global imbalances and the current housing market in the United States, which many believe to be a huge bubble.
Marc Miles of The Heritage Foundation expressed his concern over Eastern Europe. Many Eastern European countries, he said, have low flat tax rate and are implementing large-scale tax cuts, which put competitive pressure on the rest of Europe. The same pressure exists in Latin America, but he added that he remains optimistic about the U.S. ability to adjust to such pressures. What he would worry about instead, he concluded, is the possibility of inflation in near future. Not only has the price of oil been rising sharply, but so have gold and other commodity prices. That is a strong signal of an inflation risk, he warned.
As the session drew to a close, panelists discussed India and China, where large segments of the population earn just under a dollar a day. Miles said he believed that low wages were due to the inadequate economic freedom in those countries. The remedy is not rich countries giving money to poor countries, he said, but that poor countries should open their markets and give more opportunities to their people, such as liberalizing people's access to capital markets.
| 
