The goal of my speech, which is constrained in time to ten minutes is to stimulate discussion on what could be the implications of global imbalances on emerging markets, in particular what are possible EM scenarios in case of soft and hard landing of the global plane. As you will see later the range of possible outcomes depends on what is the actual cause of the emergence of the global imbalances. Let me briefly review the most popular hypotheses. How did we get into global imbalances? The need to identify the type of the flying airplane and its technical conditions implies that one has to understand the nature of global imbalances. And here we run into the first problem, as the top ‘aviation specialists’, including ‘pilots’ themselves cannot agree on that. I have identified at least ten major views about the nature of global imbalances, namely 2 : 1.  emergence of the new Bretton Woods regime 3 .
BIS Review 124/2006  3  •  Anglo-saxon countries which are very good at producing financial assets have already shown enormous imbalances, with US current account deficit and housing market bubbles as the headline examples;  •  emergence of (long lasting) asset bubbles and drop in inflation (and possibly even emergence of deflation) are market mechanisms to bridge the asset gap;  •  bursting an asset bubble makes asset shortages problem worse;  •  while financial markets development moves ahead (think about large listings in China, improving corporate governance or rapid development of credit derivatives) it is unlikely that excess demand for assets will be eliminated soon, as it seems to have a structural origin, related to demographics (aging), or to higher uncertainty for corporations operating in more competitive global economy in XXI century, which probably explains why profits to GDP ratio is at 40-years high and investments fail to recover to pre-Asia-crisis and pre-dot-com-boom levels  It does matter to what view of the world you subscribe, as it dramatically alters the subjective likelihood of competing scenarios for 2007. As PIMCO Michael Gomez puts it in September emerging markets note titled “Is it safe?” 19 : “EM has historically been vulnerable to deteriorating economic and financial conditions in the United States and other developed countries.