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December 2008

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Global Macro-Risk Scenarios 2009-2010 From Global Integration to Global Dis-integration?

Summary
Table of Contents
Summary 1

When the current extreme, pervasive financial stress finally subsides 1 , the world will look different. While financial irrigationthat is liquidityis slowly restored, widescale and self-fulfilling recessionary forces will take hold, only contained by highly expansionary economic policies. In advanced economies, a painful process of asset destruction and de-leveraging will shackle growth, especially where overstretched economic agents must repair their balance-sheets. The need to increase capital/asset ratios in a context of asset quality deterioration will make banking systems unsupportive of growth. That will again put the onus on governments, and stretch public finances globally even further in a way rarely seen in peace time. This paper updates our Global Risk Scenarios, taking a medium-term view to position ourselves. It takes a view on what may matter from a macro-credit perspective (pressure points, vulnerabilities) over the next two years. It does not presume to predict the precise course of 2 the world economy .

Understanding the shifts in the global risk scenarios 3 Macro risk scenarios for 2009 - 2010 Thinking out of the box Annex tables 5 7 9

Contact Us
Email and Web page globalriskanalysis@moodys.com www.moodys.com/gra Pierre Cailleteau +44.20.7772.8735 Chief International Economist MIS pierre.cailleteau@moodys.com Aurelien Mali +44.20.7772.5567 Analyst Global Financial Risk Unit aurelien.mali@moodys.com Client Services +44.20.7772.5454 clientservices@moodys.com Media Relations: +44 20 7772 5456

Moodys continues to anchor its ratings on reasoned scenarios for the world economy and global financial markets. However, rarely has the objective of rating through the cycle been more challenging, as current financial dislocations indiscriminately threaten most economic agents in need of financing, and as market prices suggest system-wide economic and financial distress. As the financial crisis subsides in its most destructive form, the state of the world is one with lower capital at risk and lower growth. The world faces a period of stagnation and de-leveraging. This is the central scenario, and a sea-change from what we have seen over the last decade. This scenario, which Moodys deems most likely, is one of Global Healing and painful economic convalescence.

See our paper Rating Sovereigns during a Global Sudden Stop in International Funding for a report on the risk of financial attrition that the dearth of international lending is posing to many economies in the world. 2 Moodys economy.com provides more high frequency and much more detailed economic forecasts.

To one side of this central scenario is a less negative one in which global growth rebounds more decisively in late 2009 and globalization resumes its course, albeit at lower speed. This is the scenario of Global Resiliency. After a major economic and financial setback, the growth and globalization process starts again, the resiliency of major economies is once again demonstrated, capital flows to places where it can be put to profitable use, and income convergence continues. In other words, in a triumph of Keynesianism, policy makers short-circuit negative feedback loops. On the other side of the central scenario is a more negative one still unlikely at this stage. This scenario is an international economic and financial Dis-integration that looks like the 1990s in Japan, but without the degree of political and social cohesiveness that prevented more severe dislocations. Deflationary forces overcome economic policies and the decade-long process of growing financial interconnectedness is reversed, at least for the next two years. Note that such a scenario is not the worst

possible (Deflation of the 1930s), but what appears to be at this stage a plausible worst-case scenario. The outlook for 2009-10 depends intrinsically on the success of policy actions across the globe (rescuing the financial system and stimulating the economy). Our scenarios therefore are based on the capacity of policy-makers to either (i) drive growth and financial integration back to the pre-crisis levels (global resiliency); (ii) more plausibly, facilitate an orderly though painful unwinding of previous imbalance (global healing); (iii) simply contain the severe damages associated with a global slump (disintegration). Lastly, in light of the fact that unprecedented and truly unexpected developments have happened in the world economy and the global financial system, this paper ends with a selected list of outside risks (thinking out of the box). It reviews in particular the risk of inflation, dollar collapse and a severe macroeconomic and financial setback in China.

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Understanding the shifts in the global risk scenarios

Migration risk has materialized
A year ago, Moodys started publishing macro-risk scenarios to help its analysts frame their credit risk assessment and integrate macroeconomic and financial considerations in a disciplined way. When we last updated our scenarios five months ago, the world economic and financial outlook reflected a tension between deflationary forces associated with the financial crisis, and inflationary tensions spurred on by ever-higher commodity prices. The central scenario remained that there would be sluggish growth in the US, bordering on recession, and close-to-potential growth elsewhere with inflationary pressures rising further in the emerging markets (see box in annex for a rapid overview of the last risk scenarios). The risk of migration was perceived to be extraordinarily high though; the paper was titled Navigating the Fog. The main risk was inflation and a collapse of the dollar that could precipitate a damaging transition through risk scenario 3: global de-leveraging, that is, a sharp US recession, a severe slowdown in Europe and hard landings in emerging market countries.

There has indeed been a transition to risk scenario 3, a variant of which has become our new central scenario. But it has come not from an exacerbation of inflationary tensions and a dollar crisis. Instead, it has come from a seizing up of global credit markets and the negative interaction between, on the one hand, a sharp downturn provoked by asset price destruction and deleveraging on the part of households, and, on the other hand, the balancesheet repair that banks have to undertake.

The world seems to have changed beyond recognition

The launch of this exercise of framing the macroeconomic and financial outlook has combined with an unprecedented macroeconomic and financial volatility see the dispersion and changes in IMF projections, for instance, in the graph below. A year ago, the global risk scenarios explained that four key characteristics of the state of the world had emerged from the end the cold war. They were: the emergence of China, more intense competition on the global stage, higher productivity led by innovation and the success of the fight against inflation:

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Great Convergence meant that lower income countries would continue their convergence process, thanks to trade and financial liberalisation and competent policies;

What was commonly perceived as constituting the pillars of an increasingly more economically balanced but perhaps less financially balanced world has now been undermined by one-and-a-half years of financial crisis.

Great Moderation suggested that growth was on a high trend while inflation remained subdued; Bretton Woods II meant that there was an implicit bargain by which many emerging market economies financed the US economy (and the US government) in exchange of a continued demand for exports;

How do the new scenarios compare and combine with the new ones?

The new scenarios span over 2009-2010, as compared to 2008-2009 before. The new central scenario is a variant of the risk scenario 3 (stagnation and global de-leveraging). There are now two scenarios surrounding the central scenario. Before, the risk scenarios reflected states of the world where economic and financial imbalances either translated into stagnation, stagflation or sharp decoupling. Now, their common concern is the question of global growth and the future of international economic and financial integration.

The interest rate conundrum described the unusual situation of very low long-term interest rates despite elevated growth, spurring ever higher leverage.

The issue faced a year ago was, Will a strong world economic environment help heal the wounds of the financial system and limit economic downside risk in the US? In July 2008, the issue appeared to be: Is it possible that the accumulation of shocks, especially the squeeze in real income brought about by an increase in food and oil prices, will lead to a tipping point? Now, the question is: Can government action engineer a mild and short recession, and, in particular, contain the recessionary and deflationary pressures associated with a much lower equilibrium for the demand and supply of credit?

There is no direct correspondence between the old and new scenarios (except that the new ones are centred on the previous risk scenario 3), but the chart below illustrates how the scenarios may overlap.

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The new risk scenarios for 20092010

The three main forces that will determine the macroeconomic and financial outlook for 2009-2010 are: (i) the degree of recessionary tendencies brought about by deleveraging; (ii) the capacity of economic policies to reinvigorate demand in a context where the stars are aligned for coordinated fiscal and monetary stimulation; (iii) the endogenous strength of the BRIC growth story. The main difference between the three scenarios is not so much the likelihood of heavy economic and financial headwinds in the coming months, but rather the timing and strength of the rebound and associated economic and financial losses.

In sum, while international economic and financial integration is not paralyzed for two full years, the self-fulfilling process of slower growth and de-leveraging exposes some salient features of the last decade: increased global capital flows in particular and financial interconnectedness more generally. Under this scenario, financial conditions remain tight for a while rather indiscriminately and the entities that benefit from explicit or implicit government support crowd out the others in the access to finance.

Upside scenario: Global Resiliency V shaped growth and credit risk differentiation
In this scenario, the process of international economic and financial integration that has spurred global growth for more than a decade is only briefly slowed. As in the previous risk scenario 1 for 2008-09, G7 economies plunge into recession, but a rather mild one by past standards because of massive fiscal and monetary policy stimulation. After a sharp deceleration in the last quarter of 08 and first quarter of 09, the rest of the world resumes its growth timidly in the case of Europe and Japan though. In this scenario, advanced economies grow belowto-well below potential, while emerging market economies grow at close to potential because of internal and regional dynamics. Inflation remains a concern in these economies, albeit a secondary one. In sum, the financial crisis would have brought about a pause a very costly one to a process of everintensified trade and financial integration. The resiliency of the global economy is successfully tested but the political balance of power between countries has shifted. A key difference with the central scenario is a more rapid rebound to potential growth in the emerging world, helped by a rapid resumption of global trade and financial flows (debt and equity). Under this scenario, risk discrimination is rapidly restored among asset classes, though in an environment of less abundant capital.

Central scenario for 2009-2010: Global Healing -U shaped growth and persistent risk aversion
The new central scenario is close to the previous risk scenario 3 for 2008-09: economic stagnation and deleveraging herald a period of painful convalescence for the world economy. There is a debasement of mature market economies growth trajectories. After an output contraction, growth resumes, but on a slightly slower trend. Advanced economies have to go through a very severe downturn. In the US, EU and Japan, we expect a typical pattern such as no growth at all or moderate output contractions in 2009 and below potential growth, such as 1.5%, in 2010. Emerging market economies will also suffer, growing in general below potential, leading to global stagnation for the period 2009-2010. Monetary and fiscal policy stimulation and bank recapitalizations help contain the economic and financial costs of the recession in advanced economies and put a floor on the destruction of real and financial assets. However, a meaningful rebound is postponed until 2010 for those economies where households and banks need to repair their balance sheets (such as the US and UK). The increase in household saving in the US will correct global imbalances. In the rest of the world, although the most extreme forms of financial stress recede (bringing the current sudden stop to an end), international debt flows shrink for a while and those countries that relied on large external funding (almost as an economic model) experience a very hard landing. In addition, almost universally, intense risk socialization leads to increased public debts, sometimes to uncomfortable levels and once the current financial paralysis subsides, the cost of financing for governments increases.

Downside scenario: Dis-integration L shaped growth and quantity rationing of finance

Recent developments have illustrated how conventional assumptions could be shattered. A downside scenario in the current circumstances is naturally compatible with various degrees of economic, financial and political dislocations including in extremis a repeat of the 1930s. But, as a plausible worst-case scenario for the next two years, a more likely prospect is for a period of painful financial adjustment such as Japan experienced in the late

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Global Resiliency
Risk aversion abates and risk differentiation prevails over the period. As risk premia diminish, financial irrigation is restored and companies, banks or governments can tap again the market without paying punishing prices.

Global Healing
Risk aversion remains elevated, even though the most extreme signs of stress subside. Inter-bank lending normalises at the beginning of 2009. Tight financial conditions (in financial markets and bank credit conditions) are reflected in high risk premium rather than outright scarcity of financing. The environment remains hostile to high risk borrowers in 2009 before returning to normal.

Dis-integration
Risk aversion remains extreme. Risk premia stay very high for most of the period, and market access remains limited for a prolonged time. Outright scarcity of financing and punishing financing costs generate widespread casualties (governments, corporates) and necessitate alternative public irrigation systems.

Global credit and financial conditions

Global recession avoided due to government policies with a sharp rebound in 2010.

The world on the edge of a global recession with real growth close to 3%. Advanced economies stagnate; a mild rebound in 2010 follows a mild contraction in 2009. EME grow below potential, and those that are heavily reliant on external financing face a painful adjustment phase (Central and Eastern Europe). Real and asset prices bottom out by the end of 2009 after heavy policy stimulus.

The world faces a severe recession with global output well below 3%. Advanced economies contract in 2009 and (to a lesser extent) in 2010 like Japan in the 1990s. The erosion in real and financial wealth continues despite active policy stimulation. Emerging economies are severely affected by an hostile global economic and financial (sudden stop) environment.

Global economic conditions

Economic growth remains very weak in advanced economies but close to potential for most emerging market economies not heavily reliant on cheap external financing. Real and asset prices bottom out in early 2009 after what may be perceived as an over-shooting. Commodity prices rebound by mid 2009.

1990s, but with higher economic and social costs when the ability to rely on local sources of funding becomes limited. Asset prices keep on a downward trend, further deteriorating the balance sheets of households and banks and exerting a downward pressure on both the supply of and demand for credit. In this scenario, despite the efforts of governments and central banks, a sharp and prolonged contraction of credit takes place, resulting in a retrenchment in consumption and investment in advanced economies, and a collapse in global trade, commodity prices and international financial flows. There is a strong risk that inflation turns negative, which prevents monetary policy (subject to the zero bound on nominal interest rates) from being effective. Growth remains negative through our horizon (20092010) in the US, Japan and Europe. Commodity prices fall sharply and international bank lending all but stops, causing widespread and prolonged disruptions in those emerging markets dependent on these flows. The emerging world sees its growth dynamic shattered by financial dis-integration. In mature economies, confronted with the ineffectiveness of monetary policy in a deflationary environment, governments resort to expansionary policies (increase in government spending and investment) combined with direct lending to the economy, to overcome the contraction of bank credit. Government debts balloon everywhere as a

consequence. However, even highly stimulative policies are unable to prevent deflationary forces from taking hold. Under such a scenario, financial conditions are punitive for all but the strongest issuers governments with large access to liquidity and huge balance sheet flexibility. The table above outlines our broad assumptions with regard to global credit and financial conditions and global economic conditions in each of the three scenarios discussed above (see also the annex for the details).

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Recession and Depression: Which is which?

Although recession is often defined in 'technical terms' as two consecutive quarters of negative growth, this definition is not necessarily helpful, nor in fact particularly meaningful. Two quarters of very mild contraction of output followed by a significant rebound is less damaging than a single quarter of sharp contraction followed by a sluggish recovery, or even, for that matter, a longer period of barely positive economic growth. Negative growth has also a very different meaning for a country whose trend (potential) growth is 4% and for a country whose trend growth is 2%. More fundamentally, the notion of a recession is related to the concept of an economic cycle, and designates the trough of the cycle. A recession refers to a substantial deviation of economic output below its trend, resulting in accumulation of spare capacity, downward pressure on prices and - perhaps the most relevant indicator for individuals and public authorities alike - a rise in unemployment. The severity of a recession ought to be measured by the magnitude of the deviation of output from its trend, rather than by the absolute level of GDP growth. For a country like China, for instance, a slowdown in growth to 1% would be a sharp recession, while for Germany it would be a mild one. Given its cyclical nature, a recession does not have automatic rating implications for the government. Consistent with this approach to the meaning of recession, in our scenarios we average growth rates for the next two years and complement these indicators with broad forecasts of their effect on employment rates in particular. Depression, by contrast, is defined not in relative but rather absolute terms and refers to a prolonged period of contraction of growth, fuelled by a spiral of falling asset prices, deterioration of bank balance sheet, contraction of credit to the private sector and, typically, deflation. A depression is, by definition, not a temporary (cyclical) deviation from trend growth but a more lasting inflexion of trend growth, associated with an impairment of the economic strength of a country. For that reason, a situation of economic depression can exert downward pressure on the government rating. There have been very few true episodes of depression in advanced countries over the past century. The only two globally relevant cases have been the United States in the 1930s and Japan in the 1990s.

Thinking out of the box

The recent year has clearly made a convincing case for thinking the unthinkable. The following three risks, although remote, are no longer unthinkable, and represent vulnerabilities that could result in outcomes more severe than those currently contemplated in our downside scenario.

A resurgence of inflation:

while unlikely in the

short-run given the host of deflationary forces at play in the world economy, a resurgence of inflation (which was the concern only 4 months ago) cannot be discarded. The massive degree of stimulation coming from monetary expansion and public debt increases may pave the way for a pernicious rise in inflation. This would also considerably complicate the task for

A collapse of the dollar:

the realization that the

policymakers.

very large expansion of the public debt in the US 3 and the lower-than-expected return on capital in an economy that suffers from stagnation may, as the panic subsides, lead to significant portfolio reallocation out of the US. A collapse of the dollar would lead to a jump in long-term interest rates in the US and considerably complicate the task of the central bank and Treasury to stimulate the economy. Our view remains that the safe haven status of US government securities is explained by more than simply the size of the economy (notably it stems from military power as well), but this is a low probability/high severity risk that should be kept in mind.

A severe economic and financial setback in China: growth in China has been impressively strong
and stable for many years, overcoming or masking several economic and financial imbalances. A lot is at stake in the continued economic performance of China. Yet, even this country could face headwinds. A period of below-potential growth would unleash financial, economic and perhaps political tensions that would have ramifications beyond Asia.

See Moodys paper called: The Unshaken Foundations of the U.S. Government's Aaa Rating.

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The central and risk scenarios for 2008-2009 A reminder

Central scenario: 2008-2009 will be closer to 2007 than to 2001. The world economy slows down from an elevated pace mostly because of a US economy combating recessionary forces. Europe and Japan grow somewhat below potential while growth in emerging markets remains quite vigorous fuelling localized inflationary tensions. Risk scenario 1 Sharp Decoupling: The US economy plunges into recession, comparable to 2001 (a mild one by past standards); in contrast, the rest of the world continues to grow slowly in the case of Europe and Japan, robustly in the emerging world. Inflation becomes a real concern in these economies. Risk scenario 2 Stagflation: US authorities are confronted with stagflation (limited growth, 5% inflation on average, higher long-term interest rates); the dollar depreciates further, with the countries that pegged their currency to the dollar abandoning the anchor. Growth slows down in Europe and Japan, and continues apace in the emerging world. Risk scenario 3 Stagnation and global deleveraging: In addition to a downturn in advanced economies, emerging market economies suffer and global deleveraging takes place leading to global stagnation.

On the next pages, two tables provide numerical description of the two risk scenarios (grey columns) each time compared to the central scenario for 2009-10 (white columns). The trends matter more than the exact data, which are naturally subject to high degree of uncertainty. It should be noted as well that the numbers provided are numerical averages of 2009 and 2010 numbers.

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RISK SCENARIOS 09-10 Central Scenario (white columns) versus Risk Scenario 1 Global Resiliency [x x] Intervals average over two years in % otherwise stated

GDP growth

Unemployment
8.0 8.0 8.6 7.4 4.5 7.0 7.5 8.0 6.8 4.0 ----------------------------------

Monetary Financing conditions conditions Asset markets Inflation Interest rates Equities Housing % change % change ST LT
2.0 1.8 1.6 1.8 0.6 5.3 4.0 10 8.0 10 6.0 4.0 6.2 6.5 4.5 3.8 3.0 2.8 2.3 3.0 1.0 6.5 5.0 13 7.0 14 7.5 5.0 7.5 7.0 6.0 3.3 13.5 7.0 6.5 9.0 11 13 2.0 2.0 0.5 1.0 2.0 ---3.0 3.0 0.75 ------14 10 ------7.5 9.0 ---12.5 7.5 4.0 4.3 2.6 4.0 4.6 ---4.5 4.6 2.0 ----------------------------------10 -10 -10 -10 >+10 --->+10 >+10 >+10 ----------------------------------10 -15 ----10 [-10 0] ---[-10 0] [-10 0] -------------------------------------

External conditions Oil prices in $

65 65 65 65 65 65 65 65 65 65 65 65 65 65 65 65 90 90 90 90 90 90 90 90 90 90 90 90 90 90 90 90

Current Account
-3.3 ---0.0 -2.5 3.5 -7.0 -9.0 1.5 -6.0 10 5.0 8.0 -3.0 -2.0 -2.5 -2.5 -4.3 ----0.0 -3.2 4.2 -7.0 -11 3.5 -6.5 16 7.0 11 -2.0 0.0 -1.0 -1.3

USA W. Europe Eurozone UK Japan Emerging Europe New EU Russia Turkey Middle East Emerging Asia China India Latin America Brazil Mexico

[-0.5 1.0] [1.0 2.0] [0.5 1.5] [0.0 1.0] [-0.5 1.0] [0.0 1.0] [3.0 4.0] [2.5 3.5] [3.0 5.0] [3.0 4.0] [4.5 5.0] [5.0 7.0] [7.0 8.5] [5.0 6.5] [2.0 3.5] [3.0 4.0] [1.0 2.0] [1.5 2.5] [1.0 2.0] [1.0 1.8] [1.0 1.5] [4.0 5.0] [3.5 4.5] [5.0 7.0] [4.0 6.0] [6.0 6.5] [7.0 9.0] [8.5 10] [6.5 8.0] [3.5 4.5] [4.0 5.5] [2.0 3.5]

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RISK SCENARIOS 09-10 Central Scenario (white columns) versus Risk Scenario 2 Disintegration [x x] Intervals average over two years in % otherwise stated

GDP growth

Unemployment

Monetary Financing conditions conditions Asset markets Inflation Interest rates Equities Housing % change % change
ST LT
0.5 ---2.0 2.0 0.5 1.0 1.0 0.25 ------11 13 5.5 14 ------6.5 9.0 5.5 7.0 ---13.5 7.0 10 6.0 4.0 4.3 2.6 4.0 2.5 ---3.2 3.5 1.5 ----------------------------------10 [-30 - -10] -10 [-20 -10] -------

External conditions Oil prices in $

65 65 65 65 65 65 65 65 65 65 65 65 65 65 65 65 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50

Current Account

USA W. Europe Eurozone UK Japan Emerging Europe New EU Russia Turkey Middle East Emerging Asia China India Latin America Brazil Mexico

[-0.5 1.0] [-1.5 -0.5] [0.5 1.5] [0.0 1.0] [-0.5 0.5] [-1.0 0.0]

8.0 8.0 8.7 7.4 4.5

9.0 9.2 10 8.7 5.5 ----------------------------------

2.0 1.8 1.6 1.8 0.6 5.3 4.0 10 8.0 10 6.0 4.0 6.2 6.5 4.5 3.8

0.5 0.6 0.5 0.5 0.0 3.0 2.5 4.0 10 6.0 4.5 1.0 3.8 5.0 3.5 2.5

1.0

-3.3 ---0.0 -2.5 3.5 -7.0 -9.0 1.5 -6.5 10 5.0 8.0 -3.0 -2.0 -2.5 -2.5

-2.2 ---0.5 -2.0 2.0 -5.5 -7.5 -3.5 -7.0 5.0 3.5 6.0 -4.0 -3.0 -4.0 -3.8

-10 [-30 - -10] -10 [-20 -10] -10 [-30 - -10] -15 [-20 -10] -10 [-30 - -10] -------------------------------------------------------------------------

[-0.5 1.0] [-1.5 -0.5] [0.0 1.0] [3.0 4.0] [2.5 3.5] [3.0 5.0] [3.0 4.0] [4.5 5.0] [5.0 7.0] [7.0 8.5] [5.0 6.5] [2.0 3.5] [3.0 4.0] [-1.0 0.0] [1.0 3.0] [1.0 2.5] [1.0 3.0] [-3.0 3.0] [3.0 4.0] [3.0 5.0] [4.0 7.0] [3.5 5.0] [-1.0 2.0] [1.0 3.0]

[1.0 2.0] [-1.0 1.0]

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Find all our publications at www.moodys.com/grayou can also click on the links below.

Global Financial Risk Perspectives -- Report Navigating the fog, July 2008 Mapping the Near Future: Macro Stress Scenarios for 2008-2009, January 2008

Related Global Banking Series Banking consolidation in Europe:

spective, June 2007.

a rating agency per-

The archaeology of the crisis, January 2008. Stress-Testing the Modern Financial System: Feds

Summer 2007: another false alarm in terms of banking systemic risk but a reality check, July 2007.

rate cut, key pressure points, risk scenarios, September 2007.

Banking Systemic Fears are Exaggerated Vanishing Liquidity in an Abundantly Liquid World, August 2007.

Stress-testing the modern financial system, September 2007. From illiquidity to liquidity: The path toward credit market normalization, September 2007. The Asian crisis ten years later what we know, what we think we know and what we do not know, May 2007. Global Imbalances: A Positive-Sum Game from a Global Credit Perspective, April 2007. French Presidential Elections: A Slow Entry into the 21st Century, April 2007. The European Union at 50: Are its Best Years Behind it?, March 2007.
Current Account Deficits In Emerging Europe More Inflammability But No Repeat Of Asian Crisis, March 2007.

Global Financial Risk Exchanges of Perspectives The Asian crisis ten years on: A Moody.s discussion with
Michel Camdessus.

Global Financial Risk Commentaries

Global Economic and Financial Prospects Transition Risk Has Increased, October 2007 A Credit Perspective on the New French Political Environment, May 2007. EADS highlights governments role as odd rescuers, March 2007. G7 efforts to promote developing countries bond markets a longer-term solution, February 2007. Prodis survival probable, but reform remains compromised, February 2007.

Why Is Credit Risk Priced so Low? A Perspective on Global Liquidity, February 2007.

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