"Brave New World" DiamondExchange February 28 - March 3, 2009 Date: Monday, March 2, 2009 Presenter: Marvin Zonis Presentation: Challenges for President Obama

1. Diamond Management & Technology Consultants
DiamondExchange
Challenges for President Obama
March 2, 2009
Marvin Zonis, Professor
Booth School of Business
University of Chicago
Zonis@MarvinZonis.com

2. The Global Economy - Chilling Statistics
2
European Union Industrial Production (Dec08 vs. Dec07)
-22.3%
China Imports (Jan09 vs. Jan 08)
-42%
China Exports (Jan09 vs. Jan08)
-17.5%
Taiwan Exports to China (Jan09 vs. Jan08)
-55%
Japanese Exports to China (Jan09 vs. Jan08)
-45%
Economic Decline (4thQ08 vs. 4thQ07)
Japan -12.7%
Eurozone -5.9%
U.S. –6.2%

3. Factory Output
(Most recent Monthly Data vs. Month Previous Year )
Country Percent Country Percent
Taiwan -43% Spain -15%
Japan -30 Poland -15
Singapore -29 Brazil -15
Hungary -23 Italy -14
Sweden -20 Germany -12
Korea -19 France -11
Turkey -18 U.S. -10
Russia -16 U.K. -9
www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/02/28/2009

4. International Air Freight Traffic
4
The Financial Times, January 30, 2009

5. Challenges for President Obama
Global Psychological Processes:
Humiliation
Fear
Mistrust

6. “Unemployment is Humiliation”
The New York Times, February 15, 2009

7. Anxiety – Edvard Munch

8. Trust in US Business
8
The Financial Times, January 27, 2009

9. Mistrust
9

10. Challenges for President Obama
10
• The United States

11. Crawford to Chicago
11

12. U.S. Economic Plunge
12
New Home Sales, Jan09: 23,000
Fewest since records started – 1963
Total Housing Starts, Jan09: 464,000 (saar)
Lowest since records started – 1959
Single Family Starts, Jan09: 347,000 (saar)
Lowest since records started – 1959
Jobs Lost in 5 months, Sep08 - Jan09: 2.5 Million
Real Retail Sales, Jan09 vs. Jan08: -10.9%
Number of Containers (TEUs), Port Los Angeles:
Imports, Jan09 vs. Jan08: -14%
Exports, Jan09 vs. Jan 08: -28%
Capacity Utilization, Jan09: 72%
Lowest since 1983

13. Alcohol Purchases for Home Consumption
http://www.fivethirtyeight.com/2009/02/

14. Consumer Spending As % GDP
14
Haver Analytics, Merrill Lynch, November 17, 2008

15. Growth of Household Debt
15

16. My Stuff/Your Stuff in the U.S.
16
The New Yorker, September 19, 2005

17. Increasing U.S. Home Size
17
U.S. Home Tenancy in 1971: 3.1 people
U.S. Home Tenancy in 2004: 2.6 people
1950’s Average US Home: 963 sq. ft.
1970’s Average US Home: 1,500 sq. ft.
Today’s Average US Home: 2,400 sq. ft.
Average Home Size In Average Home Size In
China: 400-800 sq. ft. Europe: 1,000 sq. ft.
National Association of Home Builders, Wall Street Journal, CNN, Intel

18. More than 80 Square Miles or
215,000,000 Square Meters!
18

19. Credit Market Debt - 2008
19

20. Changes in Labor Force
20
The New York Times, December 6, 2008

21. U.S. Underemployment Rate
21
A New Era of Responsibility, Office of Management and Budget, Feb. 2009

22. The End of the Up Escalator….
22
“…men who were in their thirties in 1974 had median
incomes of about $40,000, while men of the same age in
2004 had median incomes of about $35,000 (adjusted for
inflation). Thus, as a group, income for this generation of
men is, on average, 12 percent lower than those of their
fathers‟ generation. While factors other than cash income
also contribute to economic mobility, these data challenge
the two-century-old presumption that each successive
generation will be better off than the one that came
before.”
The Pew Charitable Trusts, 2007

23. U.S. Fiscal Deficit
The Wall Street Journal, February 14, 2009

24. FY 2010 OBAMA BUDGET
Mandatory Spending Amount ($billions)
Medicare $ 453
Medicaid 290
Social Security 695
Other Mandatory 571
Net Interest 164
DOD + Nuclear Weapons 555
Iraq and Afghan Wars 130
Homeland Security 43
TOTAL MANDATORY $2,901
TOTAL FY2010 BUDGET REQUEST $3,552
PERCENT MANDATORY 81.7%
PERCENT DISCRETIONARY 18.3%
http://www.whitehouse.gov/omb/ + WSJ, O2/27/09

25. U.S. Spending
25

26. Major Long-Term Fiscal Exposures
(Fiscal Years 2000/2006)
26
Government Accountability Office, U.S. Government

27. Total Tax Revenues as % of GDP
27
The Economist, October 14, 2006

28. Taxes Paid in the U.S.
28
The New York Times, October 31, 2007

29. Share of Income to Top 1 Percent
29
A New Era of Responsibility, Office of Management and Budget, February „09

30. Foreign vs. Domestic Holders
of U.S. Treasuries
30
The New York Times, November 4, 2006

31. The New York Times, February 21, 2009

32. U.S. International Spending
($ billions)
32
Category 2008 2010 (Request)
DOD 483.2 533.7
Special
Expenditures 141.7 133.0
Total DOD 624.9 666.7
DOE/Nukes/
Miscellaneous 22.6 25.5
National
Defense 647.5 692.2
Non-Defense
International 38.3 51.7
Affairs
www.whitehouse.gov/omb/budget/fy2008/and fy2010

33. The D.N.I. Dennis Blair on the Crisis
“The longer it takes for the recovery to begin, the
greater the likelihood of serious damage to U.S.
strategic interests”…Loss of faith in U.S.
stewardship of the global economy “…may make
it difficult to achieve long-time US objectives,
such as the opening of national capital markets
and increasing domestic demand in Asia.” But
the crisis also presents an opportunity, for the
U.S. to lead the way out of an economic crisis,
which “looms as the most serious one in
decades, if not in centuries.”
The Wall Street Journal, February 12, 2009

34. Challenges for President Obama
34
• Europe

35. West European Banks Loans to
Central and Eastern Europe
35
Bank for International Settlements

36. External Debt to GDP
36
Is This the Tip of the Iceberg?, Hennessee Group Research, 2-11-09

37. Challenges for President Obama
37
• China

38. Humiliation
38
Sun Yat Sen: China in 1924 was “a heap of loose sand”
that had “experienced several decades of economic
oppression by the foreign powers” and “as a
consequence is being transformed everywhere into a
colony.…”
Chiang Kai-shek: Writing in 1947, “During the past
hundred years, the citizens of the entire country,
suffering under the yoke of the unequal treaties which
gave foreigners special „concessions‟ and extra-
territorial status in China, were unanimous in their
demand that the national humiliation be avenged,
and the state be made strong.”
Mao Zedong in 1949: “Ours will no longer be a nation
subject to insult and humiliation. We have stood up.”
Orville Schell, The New York Review of Books, August 14, 2008

39. Chinese Nationalism: 2007
39

40. 2008 Chinese Nationalism
40

41. 2008 Chinese Nationalism
41

42. Since 2006 More Office Space Built in Beijing
Than the Entire Stock in Manhattan
42
http://mpettis.com

43. China
The Financial Times, January, 2009

44. Prime Minister Wen on Electricity
44
After falling since July last year, electricity output
and power demand started to turn around
significantly since mid-February this year.
During the middle 10 days of February,
electricity output rose 15% yoy and 13.2% in
sequential terms. In particular, electricity
output in southern provinces, the major
industrial area in China which have been hit the
most by the global recession, also increased
10% yoy and 8% in sequential terms.
E mail from frank.fx.gong@jpmorgan.com, March 1, 2009

45. China Monthly Exports and Imports
($ billion)
45
Brad Setser: Follow the Money, February 11, 2009

46. The Problem
46
Financial Times, February 12, 2009

47. Consumer Goods
47
http://images.businessweek.com/ss/07/07/07

48. China‟s Economy by Geography
48

49. Shenzhen Chengdu
49

50. Arable Land
50
Financial Times, October 10, 2008

51. Water Shortage
51
Financial Times, February 26, 2008

52. Challenges for President Obama
52
• Russia

53. Russian Highway System
53

54. Vladimir Putin: Humiliation
54
“The collapse of the Soviet Union was the
greatest geopolitical catastrophe of the
century.”
State of the Nation Address, April 25, 2005

55. Dmitry Medvedev
(September 1, 2008)
55
quot;Russia, like other countries in the world, has regions
in which it has privileged interests. . . In these regions
are located countries which have friendly relations...
Russia will work attentively in these regions . . . these
quot;privileged” regions included states bordering Russia,
but not only those.

56. Russian Industrial Production
56
The Economist, February 28, 2008

57. Russia Under Putin
57
Martin Wolf, Financial Times, February 13, 2008

58. The Borghese Collection
58
“Its richness was the result of
unscrupulous appropriation and
tyrannical extortion by the „Cardinal
Nepote‟.”
Paola Mangia describing the art collection of Cardinal Scipione, nephew of Pope Paul V,
1605-1621

59. Where Russians Save Their Money
59
RIA Novosti © 2008

60. Ambassador Sergei Kislyak

61. Challenges for President Obama
61
• The Middle East

62. President Asaf Ali Zardari

63. The Presidents and The General
http://www.swamppolitics.com/news/politics/blog/2008/07/21

64. The President and The Prime Minister
http://images.google.com/imgres?imgurl=http://www.nypost.com

65. Israeli Settlement
www.flickr.com/photos/ 8430129@N06/523422500/

66. Settlement
www.tadamon.ca

67. Abu Ghinim Settlement
www.imemc.org

68. Har Gilo
photo.dennisfox.net

69. Israeli Settlements
WWW.commons.wikimedia.org/ wiki/File:West_Bank

70. Israeli Mathematics
70
The Financial Times, February 13, 2009

71. The New Government?
71

72. Closing Down Free Expression

73. The Candidates
73

74. Ayatollah Khamene‟i

75. Challenges for President Obama
75
• Energy

76. Oil: Discovery and Production
76
Association for the Study of Peak Oil, 2007

77. Oil Production Costs
77
World Economic Outlook, International Monetary Fund, 10/2008

78. Projected World Oil Production
78
Financial Times, October 29, 2008

79. Challenges for President Obama
79
• Climate Change

80. CO2 Emissions
80

81. Challenges for President Obama
81
• So?

82. A Miracle Needed?

83. The Miracle?
GROSS DOMESTIC EXPENDITURE ON RESEARCH & DEVELOPMENT
MILLIONS CURRENT PPP$
OECD Main Science & Technology Indicators 2008-2

84. Diamond Management & Technology Consultants
DiamondExchange
Challenges for President Obama
March 2, 2009
Marvin Zonis, Professor
Booth School of Business
University of Chicago
Zonis@MarvinZonis.com