they made make goodses imported to the united states. .. >> the government of china buys $5 million in order for the u.s. government to give fight my dollars which in turns gives $5 million to chinese banks. they can sell goods to the united states to create currency

deposits in china such i can loan money to bail morgan stanley out. morgan stanley needs to pay the government back because it doesn't like knowing the u.s. government money. it decides to issue shares to the public. then on a sunday so people would notice the largest buyer is the government of china. a chinese investment corporation give morgan stanley $5 million. >> the point of that is that what can be seen as a trade deficit and a current account and a train of capital from one direction to the other can just as well be seen and because everything i just said, those actual numbers, there are actual numbers, and it's more like

$4 billion but it's about right, all that is true. i didn't make any of that. that is a mighty a system of capital in motion. so what can be seen as this negative waiting between space can just as will be seen as a system that is involved. the problem is our ability to measure that system in terms of the data that we have in terms of our framework is limited. we still all conceive of things in terms of the nation state and our economy and their nations and their a color. the chinese do the same thing. this is not an american issue per se. this is an issue of how do we all perceive the system and capital in the world. we still perceive of them as starting from a nationstate. now, assuming that the system is in motion and assuming which i know is a debatable point, the presence of the system in my view created more global stability and liquidity than would otherwise have been the case at the heart of the financial crisis. there are many people who say

the financial crisis fundamentally was caused by imbalances in the global system, the greatest and balances in the global system stemming from the chinese and u.s. relationship. i don't agree with a perspective. i think those who board of imbalances are like your friend in southern california who's always calling about saying they what is coming, the big one is coming. i'm on the national earthquake center and i see little tremors and until you it's going to happen any day now, it's going to happen. the sense of this relationship between china and the united states, it's like a friend calls you up in one day a small meteor hit southern california and because you can see, i told you so. in many respects the implosion of the financial system while it may have been somewhat enabled by the liquidity created by this relationship, in my view is much more a function of bonds and derivatives created on the basis of u.s. housing market. the presence of the china-u.s.

relationship ultimate could much more balanced global system. a fact which more people are signing on to, particularly singh how much china has become much two peoples consternation and surprise, a source of stability globally in the past year. without which banks might have been much worse. now clearly this is been a disruptive relationship to the u.s. economy, and disrupted to the u.s. perception of itself and impact to our ability to generate the level of domestic affluence commensurate with our needs and desires. so the argument here is not that this is an -- yarn is this is an unavoidable thing. it is a reality. and that judging it negative or positive will not change the reality. there's a lot of talk about a mutual desire for a divorce, that both sides have come to the conclusion that this is an unhealthy relationship. one radio interview began his

interview with me saying that many have likened the relationship to that between a junkie and his dealer. you know, chinese continue to facilitate american overconsumption. another issue that want to take issue with because it's not clear that the issue has been american overconsumption, nor is it that there is chinese under consumption. it's true the figures looked that way but 70% of u.s. economy that is domestic assumption, about half of that is the assumption that people have to do. it's not discretionary. health care costs and food. end of the 35% of the chinese economy that is domestic assumption that doesn't include the fact that people save more in china because they have to pay for the health care costs. there are lots of misalignment of statistics that lead to generalizations that don't hold up under scrutiny. but there's a lot of talk that this is an unhealthy relationship heading for divorce. maybe. now the question is where is

this headed. personal it's much like a 19th century marriages than a 21st century marriage. both sides can be unhappy, content with the relationship, engage in mutual understanding is difficult to get divorced and as much as china wants to talk about creating a new global economic system, having gotten into bed with the dollar into first place they have to come him to the dollar in the second. this says nothing about the long-term and i want to talk about what is a long-term, because i see two pathways year. one pathway is that as this relationship between the united states and china evolves and as china continues to emerge, it becomes somewhat like the european union, which seems highly unlikely today. but if you talk to a french winemaker or an italian urban dweller re: chairman berger in

1965, and asked them in 40 years hence unlit unelected bureaucrats in brussels will be making key economic decisions about their interest rates to the currency and the government spending, that he would've seen particularly and the concept of european history lucas. so the fact that it be you path seems unlikely now does not say that it is impossible. a couple things mitigate against us. the e.u. as it product of desires. west the relationship between china and the united states has evolved largely without anyone in china or the united states knowing or intending it. if it is a superfusion as i argue it's an inadvertent one, and in many ways and unloved one. it's difficult to create a cohesive set of governing fusions without people wanting this thing to exist and then have it be covered here but it is possible as these two societies continue to evolve together, that they will be forced to work together in ways

that neither particularly like the both see it as in their interest. this is not to say the e.u. is a perfect model, but as great a level of stability and prosperity for 349 million people, all of them have the month of august off. so that is on the balance of human history not a bad thing. the other pathway is a more troubling one. and that is as this relationship evolves every capitulates the relationship between the united states and great britain, the first half of 20 century, except in this case the message plays a role of great britain and china plays the role of the united states. february of 1946 after the british had fought two wars against what he believed to be the threat of both imperial and nazi germany, turned turned to to deny states which had been his closest ally which provided with untold millions of dollars of funding which is the equivalent of trillions now, for a while because he was unable to

meet its short-term commitment having had its coffers depleted by the war. the united states says no and the british come back and said if you refuse to give us the $5 billion loan we need we will default on obligations and that will not be good for the international system. the americans come back and say fine. you can have the money. but under two conditions. one, you abide by bretton woods committee make the dollar and not the pound but preference. basically the american said to the british you can have the money but you cannot have your empire. that indicates a cascade of dominoes that fall rather quickly, such that within a few years britain empire is ended and enters decades of children. there were things, a lot funded in london in the '50s and '60s. it's a lovely country but there are better things as well. we are nowhere near in the china-u.s. relationship given china is holding u.s. debt to a

1946 moment. the problem is we don't know how far along that path not only won't do how far we are until it's too late to get off of it. the issue as far as i'm concerned is not how does china evolves. china's going to do with chinese going to do and is largely going to do what is going to do regardless of whether we like about and whether we try to contest it or not. it is the first time in the past 50 years there's been an economic force in the world that is significant enough that it is neither coerce will or changeable by the desires our actions of deny states, nor is it susceptible to military action. and i think it's unlikely this tension if it exists ever takes a military dimension because china's not trying to compete with u.s. military. they would love for deny states to spend $600 billion a year an aircraft carrier because they're not attempting to build those up.

so, china's going to do what china's going to do. the question is what's the united states going to do. because if one assumes, as i do, that china's evolution is a fact, much as the evolution of the united states in late 1890s to the middle of the 20 century was the fact, not a fact without great internal turmoil so sentencing china may be headed for a real they crashed or the resource intensity of china's industrial growth will be to untenable spikes in the price of oil and copper that within put a crimp on it. or that there's too much loans being given to china to support the actual activity, the fact is all of that could be true and the trajectory could still be incredibly rapid, relative to the rest of the world, just from the 1890s to the 1940s was, incredibly strong even with the great depression. if you want to do historic

running again, china has emerged from past economic crisis both stronger just as the united states did relative to the rest of the world. a market that is both consuming of new ideas that are attachable and competitive that relationship will continue because right now china's not trying to innovate at the level of the united states is doing. even less innovation and research is more than china is doing or aspires to do. they are in the buildup stage. they are not in the creative stage. that will last for ever. but it is a competitive advantage and it's a window that hasn't yet shot. so the more the our economy remains dynamic and creative and we think about creating markets in products and ideas of the world of tomorrow, the more we will remain as competitive and dynamic and, therefore, a necessary partner just as the more china continues on its path

it will remain a vital source of both target and ideas and capital for the united states. whether or not we're able to embrace that without proceeding as a relative decline is a much more troubling question. and whether that will be able to act with urgency isn't equally troubling question. in the area of green technology china decides will spend $20 million a month a green technology because we recognize the environment path will be untenable sooner rather than later. and for the next 10 years china's path where they were used more and more coal and more of our industrialization so they had better take that time while things are getting worse to lay the groundwork for things to be better, and spent on solar, wind and everything else. whereas we talk about green energy but it takes is 18 months to put $20 billion in total on the books, and another 18 months

-- people to live a democratic system and that means less to do with all the inefficiencies of democracy and china has the advantages of being an autocratic system in which the answer is, so? that's the world we have to be living in. they have the advantage of an autocratic system. and that i think is the question and one i don't think is answered although i don't think the current signs are hopeful. but we are not there yet. this relationship is far too independent for i decide to do anything other than wish it were not. which is a good opportunity to act with urgency the moment requires, still if that is done, this relationship will continue to be mutually constructive. but that if we don't come in my view china will continue to do what china does and the competitive ability of the united states to meet that would decrease and become increasingly difficult. so, it's a fascinating moment.

i think it is astronaut as if we can talk about the rise of the red states a few years ago. it had deny states grappled with that i think it will be the defining issue of what the domestic prosperity of this country is for the next generation or two. so thank you very much for coming. and we have some time for questions. [applause] >> i recognize, you want directness people? >> i just want to thank you for that. you provided many facts. but the fact remains that was a terrific presentation so i thank you for the. i just ask that you wait into the microphone comes to you and you can identify yourself and try to keep your questions briefing to the point because we have limited time. jim? >> james, thank you for having a stock. what are your views on possible counterintuitive new superfusion between japan, china and taiwan?

>> that's a good question. clearly there is a fusion going on between taiwan and china. there was some question marks about 45 years ago but it has become so intertwined economically with china to the point where most of the technology manufacturing has gone to the greater shanghai area, a lot of the capital infusions that have been american have been taiwanese. and i think there's increasing recognition on the part of taiwan that its economic future really relies on a fusion with mainland china. whether that takes the form of the hong kong system i.e. some autonomy with some joint integration, who knows? budgets on that pathway. japan is an interesting one. japan's economic growth the past few years has been totally derivative of china. so when china was buying -- japan imports more than china,

then imports from china. so that china has a negative trade balance. it has high power equipment and earthmovers and high-end steel. so when china is building and buying, japan is doing okay. when china isn't, japan collapses. the problem is japan hasn't solved a their domestic consumption issues. it's almost entirely depend on how does china go or not go. there's much less willingness to cast a lot with china because of the historical pride in tension. i wouldn't hold one's breath about that kind of fusion between japan and china except for the fact that already japan's growth is a derivative and dependent on china. so there's kind of de facto. it's much less clear, particularly 10 years down the line if china does which is likely to do make a lot of us have japan is doing but it's not clear what japan add to that equation because it's not a

market. for all the discomfort, the fact it is such a vibrant market, even in a humble state china's trade with the united states dropped 10% this year. it's about what was in 2007. on may 2008 which was extraordinary if you think about what's going on in the world. japan doesn't offer that. i don't see that as much. >> as you pointed out, china is going from a simple type of manufactured there is to one of high sophistication here and they should be getting it from the u.s. they are investing in u.s. companies, partially or solely owned by the government. and they're taking our technology and we are training their people to be our competitors. can you comment on where we going simply because we haven't got enough capital in this country to do the research and development that the private sector needs to grow. we have a terrible job shortage,

and the technical privacy, can you comment on that? >> on the first part i would say we probably do have enough capital to engage in research, we just aren't using it in that direction. there's a lot of constraints on our ability to utilize the capital we have constructively but we also have constraints now we are using versus how we are not. you could make a good argument for if we set more money on research and development and on the next wave of things are probably ought to be grading more jobs, including government, putting money in those directions which are trying to do but it's a very slow, arduous, inefficient process. again, not the best competitive advantage. on the issue of to what degree is a china piggybacking and taking and training from us in order to build, i think yes, it has been a fascinating and disturbing global shift of capital which is kind of an

allocation of our money for the rest of the world where there are many to china in form of us by distant or our money can be so is producing parts of the world in the form of purchasing oil and commodity. which has meant that the result of the crisis the past year has been, it's been a really bad time to be american labor. it's been a century time for the american capital and it's been a really great time to be chinese and indian and brazilian and chilean an australian and lots of other things. they will write the history the pastor as the great, i don't know, what's the opposite of the great recession? their great recession. our great advantage. but on the competitive things, what it is as a call for that kind of innovation because the amount of time that americans spent agonizing over the theft of intellectual property, americans further in two weeks later they are making our stuff, kind of misses the point. in information technology world where ideas are relatively

porous, most countries can make an information against you with intellectual property regulations domestically whether i had taken drugs habit for five years of patent and the fact that an israeli company can package it up anyway, engineers are being produced hither and yon. and at most companies now say look with you five years once return i get into the product before the product can be made by someone else without missing any money on the basis of the. and in china rather than spending time focusing on oh, my god they are stealing our property, both companies are quietly doing his recognize we've got about five years. if we partner with a chinese company, gmo g. or anyone else, we have five years where they're going to work with us and deals require the transfer in a lecture property as part of the deal. which is the reason why he got five years to innovate the next product. because the chinese are not even trying to innovate the next

product. as you maintain the edge maintained by the region -- reason for being in that market. and that's just the imperatives of that. and i think some good companies are recognizing that and i think a lot of them are still stuck in the wouldn't it be great if there were enough lawyers to enforce intellectual-property? until that happens they will not do it. again, i was a we've been a long process of exporting jobs to other parts of the world and a lot of the sorts of jobs, construction is also been efficiencies and technology it is easy to rail against another country and against the computer. there's a lot of drive that go into that.

>> yesterday's "new york times" had two seemingly contradictory articles. one was climbing that the g8 is seemingly, jeff is fracturing and frightening and breaking up, energy is becoming irrelevant and it needs to be much more weight given to the developing nations and, therefore, it's got to be g. tony or maybe g. 30 or whatever. the same paper had an article saying really the only two powers that matter in the world economy are china and invest its and it's it's got to be g. to. i wonder whether any combination of these is likely to have an impact of the chinese governme government. of course, its policies clearly our mercantilist, and clearly is following the practice of bigger the neighbor in terms of trade and currency policy. at some point i wonder whether the leaders themselves might

feel that it is in their own interest not because the united states is pushing them or anyone else is pushing them, but it's in their own inches to accommodate the needs of their partners, whoever they are, rather than impoverishing them according to a mercantilist system. >> i feel like i should have it, like wow, i could've had a g8. i don't agree with the latter part that is a bigger the neighbor policy. i think in fact between 2005-2008 china about its currency to appreciate nearly 20% and was on a pathway of a gradual appreciation of its currency. is very much in the chinese government's interest to increase the purchasing power of china and a chinese consumers. although one of the consequences come if you these dizzy and appreciation, also purchasing assets and purchasing elsewhere including investing in the united states. when china has invested indiana state some of those have been

greeted with a xenophobic paranoia that oh, my god china is going to come and this is a sign of weakness rather than a can assign a this is the kind of system we have created and there are echoes of the japanese buying pebble beach and rockefeller center, all those which turned out to be such stellar investments. so i think china does he in its interest to gradually alter the balance because i do think the chinese are where you cannot impoverish herself. and their path that is deeply employed with global prosperity. in fact, with which they are uncomfortable, not at ease and at the own cultural desire to not beg thy neighbor but really go alone. building market and shut off. that's the kind of chinese cultural legacy. although their investments in africa and latin america in order to get resources comes from a kind of we need to be invisible because there's because there's a lot this one

has for us to continue to grow. the problem is when it becomes an issue of pride, it becomes a nonstarter every time americans get up and say you are playing unfair, you must we value your currency, that's almost the worst possible pathway to work constructively. part about china's evolution's demand is the mode are very different. americans tend to get out and make strong statements of principle of an ideal version of the world we wish to be in, and then it would be much more pragmatic and potentially hypocritical in actually being -- dealing with real-world in private the chinese tend to be completely and dine in public, and only really engage in some series in private. so the public face of things is not the right venue to engage china, but it's the kind of way

in which we are accustomed to engaging. that's a real inhibition on both sides because it leads to the inability to constructively discuss something because we think if we don't do what we a week. and they think if they do our way there we. that's i think a difficult navigation. it's something we will have to get used to because there's a lot of commonality there. it's often difficult to get to that. this includes things like values and rights. there's been a such a china wake up and come over here. because there prosperous they will become democratic. again we will see but one of the great test over the next 10 years will be is this historical pathway that the west took, were all part of the same magical broad, our this just a particular pathway based on a couple hundred years of history? do they represent anything but ubiquity human beings just need to better themselves with family and have some sense of personal autonomy but don't need to vote

and don't need to publicly speak about the government. the test for china will be a decade from now with kids to grow up in china who grew up in this world. is anyone over 20 in china? you have more freedom influence than you thought you'd ever have. you can travel, you can buy stuff, you can buy cars, you can buy maserati's if you the money. you can play video games for 10 hours. but good things and bad things that you couldn't do. the generation that grows up with this is normal. are they going to like it or not like it? i know that's a bit of what you're asking the candidates deal the assumption that we into that relationship with and that the internet are often just that, assumptions about how the world is and should be. the more weekend see this rather than what we think it should be.

>> last question. >> can you comment at all on the relationship of the russian economy and the chinese economy, where is it going? >> i think russia really is a commodity basket case, meaning russia survives when the price of oil goes above $80 a barrel and everyone needs iron ore our box i can always other things because rush is engaged in no intro to the unending able to generate income. much more even in japan. as goes china soakers russia. goes china, russia is still on a pathway toward complete venezuela's asian come to make an adjective out of venezuela. they don't invest in on all the production. the money -- the money disappears. who knows where it goes. russia will be big, but i don't

see it as having much vitality in the future. one quick more question. quick. >> as opposed to one more quick question. >> would you please evaluate the significance of china's billion plus population? in the sense that they can keep producing millions of ph.d's come anything they want, so potentially they are a threat. on the other hand, they have a huge rural population they have to feed and whatever. and how do you compare this with the new? >> it's a great question. china has enough people who are still in poverty in rural areas that he can continue even as it moves up the value chain, more wealthy, middle-class. there's a huge internal market of low-cost labor. which will be exhausted at some

point but not for decades. there are questions about china's demographic path, because of the one child policy, that china will begin to age before it becomes affluent enough and it will undermine. all i can say about that is every demographic projection and consequences thereof have been wrong. which doesn't mean they will not eventually be right. it just means that there's no great reason to believe that the procession of demography being destiny will do any more substance in the future that it has in the past. what's interesting about india was in the has a more favorable demographic curve and has a lot of young people now who will become wealthier and support an aging population. that india is do a much more internal economic story. china is a much more integrated economic story with the world. i imagine we could be sitting here is talking about india as an integrated economic story, but india has taken a path that we will develop internally before opening up to the world

commercially. china has taken the path that will open up the were commercial in or to develop internally. those are two different pathways, both of which seem to be viable right now. and not competitive. so i think there's a lot to be said of kind of both demographic pass here. and i don't think either is going to end of the development, certainly not in the next decade or so. i do want to end with one boy, is as you buy a book which is not -- and author wants to be able to sell books. it's because books are where the only things that are still actually made in the united states. [laughter] so if you want to support the future vitality of this economy and the system, please, buy a book, by two, by three. not for me, but for your country. [laughter] [applause] >> how can i top that? thank you so much. we really enjoyed having you. thank you all for coming. >> zachary karabell, president

of river twice research is the author of "the last campaign," and "parting the desert." is a radio commentator on cnbc and a number of other media outlets. for more visit rivertwice.com. coming up former british prime minister gordon brown presents his thoughts about the causes of the 2008 global economic downturn and suggest ways to turn things around. he speaks at new diversity in new york city for about an hour. >> can i say i am here for one very, very important reason. because your brilliant president, john sexton, has inspired me as he inspired you, and as he inspired increasingly

many countries around the world with a vision of a global network university. this is a vision that is borne out of john's great and deep thinking. it's a vision that is forged out of the deal of the interdependence of civilizations around the world that it is a jew that is being driven forward by brilliant people in this university, and it's been realized in a campus already in abu dhabi. plants or other taxes, all the different continents of the world, with this great ideals that by people meeting each other, discussing with each other, debating with each other, ideas and challenging each other about the ideas and prejudices that we can build a stronger global society in the future. so i am very privileged to have been invited first of all by my great friend bob shrum, and then by john sexton, to be a small part in a great project which is

one of the pathbreaking initiatives that is going to change our world for good over the next few years. i believe that you who are students, supporters and friends of new diversity ought to be privilege to be part of a project that is going to change not this country but change the whole world. i started off as a lecturer in a university when i was somewhat younger, and universities as you know stand for objectivity, rationality, impartiality, for the disinterested pursuit of truth. and these are all the qualities you have to leave behind when you go into politics as i found out. [laughter] i had a bit of time him and as john glenn over these past few months in voluntarily, and i look at what my predecessors had done in had achieved. when the israeli left office he

started writing poetry at the fact that nobody was interested in reading it, or even hearing it didn't seem to worry him at all. when gladstone, another great primaries of 19 center left office, he ran and he commented on at the time, but just imagine what the papers would have made of it now, the media now. he ran what he called the midnight club for fallen women. and used to go out in the streets of london to try to rescue prostitutes. and they don't know what their real motives were. and then we had a great prime minister in lloyd george is probably doing the best primers have ever made the pages of playboy because of patty. churchill resigned in 1955 and he changed, the resolution he made to churchill, never to drink before lunchtime. and when he retired, he changed it that he would never drink alcohol before breakfast. [laughter] we have a prime minister called

rosebury. a horse meeting clashed with a cabinet meeting. he always chose to go to the race. but when he retired he said the greatest thing that happened in his life was nothing to do with politics. it was his horse when he the greatest competition that took place in britain, the grand national but i decided i would do something far more productive. i would work with new york university. some very privileged to be here today. [applause] >> when i was chairman of the international monetary fund we had meetings in washington. this is what i want to speak very briefly before we have, you're free to ask any questions you want of me and to continue in that discussion. we had a meeting a few years ago and there were demonstrators outside the meeting. they were complaining about the globalization and all the effects of it. and i looked around the post is being displayed at that rally come and to all sorts of

different groups represented. but there was one poster that stood out, so when i put on the lettering, worldwide campaign against globalization. [laughter] and you understand what people meant. in france that an anti-globalization campaign which was very typical, and it said no to 2000. thousand 2008. i completely -- but i want to say that was been happening over the past few years and what is likely to happen over the last few years raises profound questions about the global economy, our global society and our role as citizens for the future. and in any great city, this is the greatest city of america, new york him any great city is the profound question we have to think about, the good news and bad news is about globalization is this, the difficult news for america and europe to accept is that for the first time in 200 years of industrial history, for

the first time even going through wars and depressions and wars again, we have now reached a position where for the first time europe and america together are turning out produced by the rest of the world, particularly asia. at manufacture, out exporter, out invested by these countries. and it was hardly surprising that at some point and america, 10% of the worlds population would stop being the confidence that would produce more than 50% of the world's goods and manufacturers and world's exports. if he thought about this single factor, this massive change and restructuring of the world economy that has taken place, you would probably be worried about the security of your job and the security of your children, and the security of the savings and investment for the future because we are seeing massive shift in the industrial productive potential a different parts of the world. but there's a second change that is working its way through and@ it's going to sing over the next

few years perhaps the most powerful driver of world economic growth. because the billion people are producers in asia, and china and india, but also in the emerging market countries of brazil and russia, south africa and so on, they're not going to be content with being producers. they want to be consumers as well. the biggest driving force of the next 10 years will be the rise of the middle classes and all the different countries and continents that we call energy markets at the moment. and this is a huge opportunity for the world economy to grow again. this is the exit strategy. this is the opportunity for american ingenuity and dynamism and innovation to show that it can produce goods, biotechnology goods, custom-built goods, sophisticated goods, knowledge-based goods that are going to battles with the market of american and europe but sweet

as huge new consumer markets of the future. so the world economy can rebalance the world economy can create jobs. the world economy can create growth in the future. the world economy can can send a financial crisis that was very deep indeed, and this massive structural changes that is happening between europe and america, asia and the rest of the world. but to do that you cannot pursue orthodox policies because you're at a point of transition in the world economy. you cannot afford not to invest in education and trade and training and skills and technology and science. if you do so he will not have the goods and services that will be the most sophisticated and the ones that people want to buy. and america with its great genius and his great ability, great companies can be one of the great beneficiaries of this new era. because you are creating a consumer market in asia that is twice the size of the consumer market in america. the second thing that will happen is that if we trade freely with other countries and

don't become protectionist, then we can get the pictures of these markets because the danger of protection, people saying we've got a colony because we have imports coming from other countries. think of it the other way around. we have an opportunity here because we had huge export market that free trade can allow us to benefit from the future. affecting all happen in the future it will make these new opportunities that are unheard of since he does revelation is there's got to be global cooperation to give countries don't work together then we will find a world where more people be unemployed and more people will have lower standards of living, that is possible if we worked together. and i think the biggest test of the next few years is whether america and europe and africa and asia can work together in cooperation to build economic policies that mean that you sustained growth and environmental improvement, sustainable growth, and you can create jobs. divestment you can create 50 million extra jobs and this

would help america through the state of a unemployment if we accord it policies across the world. the message i have from my experience learning from what we had to do to counteract the financial crisis in 2008 and 2009, is that there are global problems and we need global solutions. you can have financial stability in america it is financial instability and every other country. you can't have good and i'm at the policies in america that work if they're going to be undermined by that environmental policies elsewhere. and you can have growth without trade, and that means that shut to cooperate with other countries to do so. this week is the week of the nobel peace prize being awarded. controversially as you know to a chinese citizen. but some of you may have heard the story of alfred nobel he was the founder of the nobel prize. he woke up one morning while on holiday in france, and he saw a

newspaper that had, probably, an obituary come even though he was perfectly alive, and he got a terrible shock because the obituary said of alfred nobel, it was a mistake because it was his brother that action lost his life, obituary said that this was one of the most notorious and infamous man that was responsible for more deaths than almost any other because he was the manufacture of armaments and he sold them with impunity to the whole of the world and allowed armies to fight each other with these weapons. and nobel was so impressed by this criticism that he decided to change his life and hence, the nobel peace prize, hence the nobel prize for science and physics and mathematics and economics. it's his intention to do something good in the last few years of his life that he that would undo some of the damage he

had done in the earlier years of his life. and it does strike me that the world can change. like a nobel change, the world can change. and we can actually do things better in the future. one of the great things i've been asked to do the last few weeks, it's 50 years this year since john f. kennedy won the presidency of the united states of america. it is 50 years in january since he gave that famous inauguration address that many of you will have read and absorbed and been inspired by, as i was, and as many other people were. and in that inauguration address there are many, many great phrases and sentimentsentiments and invocations to do good. asks not what your country can do for you, ask what you can do for your country. never negotiate for freedom, never fear to negotiate. the torch is passed to new generation.

in fact, richard nixon was asked because he was his opponent which of these lines he would love to have given himself if he had been the president and he replied, the light i would've preferred was i hereby accept the office of president of united states of america. but i would -- i suspect your comp going to the candy labor if i would greet some of the words from this inaugural address. and they've asked people from every continent of the world from india, from china, latin america, europe, to read a section of a great inaugural address. there's a list of international speakers reading at this address any new way for a new age. the part i was asked to read was divided will certainly fail, united, however, we can work together to abolish the great evils of our time. hunger, illiteracy, poverty, and were. and i think these are the sentiments that should influence us as we move forward. we're just seeing a great global

crisis. it has ruined the lives of large numbers of people unavoidably. we can build a better global economy in the future and i'm suggesting one of the ways that we can go about this, that we can underpin the global economy by an ethical view of a different continent can work together and share ideas and benefit from each other's face and tradition. there's nowhere better to start learning the lessons about the past so that we can influence the future than this first or te university which to the credit of your president is now leading the first global network university of our time, the first in our history, and one that is certainly going to change the world for good. thank you for the opportunity to address you. [applause] >> it was a great crisis, and gordon brown has written a great book about it called "beyond the

crash." in which he touches on the depth many of the themes he just sounded. and it is a leading people in the audience be part of this, i'm going to ask one question and then open it up to you. all of you. one of the most gripping scenes in the book is, and you probably convey is what you did on your flight back from america on september 26, 2008, as the world teetered on the brink of financial collapse. you just left a meeting in the white house. onboard that plane, particularly you were not sleeping, wielding a black pen, the black felt pen to use, you really phrase, on a piece of yellow legal paper. that i on a second piece of yellow legal paper wrote another phrase. and those two phrases played a decisive role in rescuing the world from what could have been a relentless downward spiral. do you mind telling the story

and telling how you got the americans to come around? >> you know, it was fascinating what was happening at the time, but it was also fighting. if you think back to that prayed when lehman brothers had collapsed him and the markets had frozen, and no be quite new which was annexed institution that was going to fall, nobody quite knew how we're going to get out of it. people were sort of grappling around those institutions because he didn't quite yet understand how serious the crisis was. we had tried just about everything, and so had the americans. we try to provide liquidity or short-term finance to banks on the grounds that this was simply a cash flow problem if you like. rather than a structural problem. we tried to give banks money. and we try to persuade the banks that they should get extra capital to rights issues so that they could issue shares.

and all the time we were getting near the point at which banks were not able to handle the cash to the customers because they just did not have the money coming in in a way that was necessary, despite the fact that the fed and the bank of england and the european central bank were providing resources to those for a short period of time. and i sensed that the problem was not short-term finance, and i sensed that the problem couldn't be solved in an ordinary way. and i had people working over the last few weeks before then about what was the real position of the base, what were the true positions? because all these disease assets, the property that was going down in volume so quickly, companies were collapsing, and i realized that we had a situation, we have the opposite of what we really thought the system was about. we have capitalism without

capital. the banks did not have enough capital. and one banker said to me, you know, i'm only beginning to understand the risks i've been taking. and i thought that's a bit late. and another one said to me, all i need is overnight finance, and the next day his bank was collapsing. and he needed billions of pounds, of capital for his institution. so i talk to george bush in the white house and i talked to a lot of bankers on wall street and to talk to all the other prime ministers who were here in new york for the united nations meeting, and the community consensus because nobody quite knew how bad the problem was. i realized we had to banks, actually three banks that would've collapse within a few days had we not acted. so i was coming back, i realized we have got, we the government have got to recap lies these banks. we have got to buy shares in these banks. we have effectively gutted semi-nationalized these things otherwise they will not be able

to keep going. if we did in the capital n., nobody else would. they could survive just with short-term funding because he had been unable very soon to pay out money to people are calling on the banks to do this service for them. so as a is coming back i was working with people with some great advisors we had, not sleeping which i would rather have done on a flight back from the estate. we said recapitalize now. so i wrote that on this bad. we got to restructure the banks immediately, and we're going to put up what we decide about 50 billion pounds, which is about 60, 70, $80 billion, and we decided we would have to do that. and then i said how can we persuade the banks? even when they were in such -- they were not admitted the gratitude of their busy. so we would have to say to them, under no circumstances would they get any more support from the government in funding our liquidity and less they agree to

our proposal. so we would have to be, give them an ultimatum. i do you agree our proposals or we will stop funding you. it wasn't as good as no taxation without representation, but it was no recap position without liquidity and not very eloquent, but that's what we had to do. so in the next few days we tried to persuade the rest of europe and we tried to persuade the americans that this was the way forward. america was doing, you know, buying up all the trouble assets, by got the disease assets and we thought that wasn't going to solve the problem. but gradually people start to realize this was the way forward. we made an announcement. no one else is going to follow immediately. but by the weekend the europeans had invited me to their meeting, and so they agreed to do it. by to see the americans had agreed they would recap lies their banks as well. and so we managed what would've been i think a situation a few days from then where you could gotten the money from a cash

point. inserted businesses would be able to pay their employees. because they wouldn't have been able to make the commitment they had. it was a real crisis, and i think it's only by understanding depth and severity of the crisis that you can also understand the difficulty of both president obama and others have had in trying to get out of that crisis. it was so severe and so fundamental, the markets froze up completely that you got a long way back to a situation now so desperate, so severe. we restructured the banks and and we decided that we would approach all other countries to do that, and then we decided you've got to reach of the world economy so you have to have resources in the world economy so it could start to grow again, and we move towards 2009 meeting we had to cheat 20 set up for the first time, all the countries can end the egregious underpins the world economy by a trillion dollars of resources, never done before, never tried before.

but i think the combined decisions of all these countries, america, europe, men can we avoid the great depression. we certainly have had a and terrible recession, but it didn't descend into the great depression that we had in the 1930s. we've got a lot of lessons, and i try in the book to say we have to put a global financial system that works but we have to get back to growth pretty quickly. you can't talk about economic policy that is working if you have 10% of your citizens unemployed. it's just not something any civilized society wants to tolerate, if we can do something about it. and these are avoidable and we've got to do something about it. >> okay. we have microphones in the aisles if people which is lined up there. there is one of there. yes, sir.

[inaudible] >> do you think what we did in this country after the recessio was adequate to prevent another xp?xxxxxxx the second question is lessxx about economic policy that it is aboutx another part of globalx civil society, and that'sx information. i wonder if you could say something about diplomacy and security leaks, and security after wikileaks, and the julian assange situation. what kinds of policies do we need to develop to deal with situations like this? >> it's quite difficult to talk about secret diplomacy now, isn't it? [laughter] it's one of these terms that people talk about with a bit more caution in the future. can i say first of on the financial reform, that while i feel, we do things in a

coordinated way. i think one of the problems that caused the financial crisis was if you had one financial sentiment like new york and london, it could be doing all the right things, it could easily be undermined and other financial sentiment, and that is in a race to the bottom of standards. so there's no doubt a lot of the problems arose in new york and in london, but there's also no doubt that a shadow banking system developed which was being operated from a whole series of regulatory and tax data. and if you have that race to the bottom of standards were people can move their money from a place that's got regulations that make sense to replace that is lax and is competing for business on the basis of the laxity of its standards, then you've got a problem. so i believe it was able to regulations for the future, that america and europe and the major

financial, that included hong kong and singapore as well as the european and american centers, that we coordinate our rules and regulations and standards in such a way, and in a transparent way that we don't have this race to the bottom we saw in the past. to follow the money you had to go to almost every part of the world that ended up in regulatory havens that really were, if you like, lowering the standard that we have to expect that if we're going to stability for the future. so the lesson is not whether america and britain are doing the right or wrong things. i think you're trying to do the right things at the moment. the lesson is if you don't coordinate it, and some other machine will offer itself as a lax regime and solve problems for the future. as far as diplomacy is concerned, you know, there's something that has come out of

these tapes that suggest that in most cases america is not pursuing an honest and principled foreign policy. there are certain parts you'd question in certain parts that nobody will like, and certain decisions that seem quite strange to some people. but generally speaking, what we've seen is an american airstrike of the and honorable role in the world, and i'm trying -- and trying to do its best. it's of course the implementation of these sentiments that becomes the issue in so many different parts of the world where you're working for peace in the movies, we are working to get your troops out of afghanistan, you have a stable afghanistan, where you're working to make sure pakistan -- we are working to see less proliferation. these are the aims of president obama's policy. i don't think there's much that i've seen in the disclosure, that he knows nothing else that suggests that that is anytin