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4. Analysis: The Vision Thing
1.
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Objective:
Understand the fundamental causes of the Financial Meltdown.
Analyse the writer’s opinion of the economic models.
Learn the words and expressions used in international economics.
2. Summary of main ideas:
(1) Introduction (Para. 1-5): Why did we not able to predict the Financial Meltdown?
(2) The policymakers all made mistakes. (Para. 6-9).
Para. 7-9: the US—confident in its financial market; Europe and Britain—did not
foresee a recession.
(3) The predictions of the economists (Para. 10-13).
Para. 10: IMF economist—the risk is not so threatening.
Para. 11-13: The independent economists—not able to foresee the severity of the
crisis.
(4) Six lessons to learn (Para. 14-21)
Paea. 15: the fragility of the global economy in front of a systemic banking collapse.
Para. 16: the loose monetary policy that caused a credit expansion.
Para. 17: the shrinking household and corporate incomes.
Para. 18: decrease in bank loans and consumer spending.
Para. 19: over-reliance on the output gap in forecasting.
Para. 21: seek rationales rather then question whether the events are sustainable.
(5) Pessimistic opinions of the economists and policymakers (Para. 22-26)
Para. 22-24: Criticisms and warnings of the economists.
Para. 25-26: Warnings of the policymakers.
(6) A summary—Economic models are not reliable in making predictions (Para.
27-29).
(7) Analysis of the economic models (Para. 30-35)
Para. 30-31: the effect of the butterfly’s wings.
Para. 32-34: Making predictions based on the trend is not scientific as the trend may
change.
Para. 34-35: Mean reversion cannot anticipate anything out of the ordinary.
(8) Conlcusion (Para. 36-37)
People who make correct predictions are unconventional and are dislike by all.
3.
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Additional language points:
ludicrous (Para. 2): stupid.
presience (Para. 2): ability to know what will happen in the future.
raised the predictive bar (Para. 4): made a authoritative prediction.
morph into (Para. 6): change into, a computer method.
leaves…with ample egg on their studious faces (Para. 6): make them look silly
because something embarrassing has happened.
(6) a trough (Para. 8): a downturn.
(7) gush at (Para. 10): express admiration.
(8) purr (Para. 10): speak in soft and low voices.
(9) Nouriel Roubini (Para. 12): Professor of Economics, New York University, RGE
monitor.
(10) pan out (Para. 15): move in a particular direction. Expression in using camera.
(11) mega-bear (Para. 20): huge bear, bear refers to the bear market. The term means
a big pessimist in making predictions of the market.
(12) dine out on stories (Para. 25): keep using a story about something that has
happened to you in order to entertain people.
(13) incumbent on …(Para. 27): the consumers …are responsible to be aware of …
(14) under-promise and over-deliver (Para. 28): make fewer promise but provide
more information.
(15) extrapolation (Para. 32): guesses, forecasts.
(16) killjoys (Para. 36): someone who spoil other’s pleasure.
4.
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Text structure: A news commentary.
The event (Para. 1-5)—inability to predict the financial meltdown.
Context (Para. 6-13): Wrong forecasts of the policymakers and economists.
Comments (Para. 13-29): Six lessons to learn; pessimist predictions, over-reliance
on the economic modles.
(4) Comment (Para. 29—16): Analysis and criticisms of the economic models.
(5) Final comment—Pessimistic predictions are unconventional.
5. Additional background knowledge:
(1) credit expansion: increase lending, result of the loose monetary poplicy, opposite
to credit crunch.
(2) demand for money will be stable: according to the economic model, the demand
for money can be adjusted by the market and monetary policy. If the financial
market is over-heated, we can tighten credit. If the economy is not good, we can
stimulate investment by lowering down interest rates to encourage borrowing.
However, during the present financial meltdown, although there is a recession, the
banks do not want to increase lending, and the individuals do not want to invest in
the stock market, for fear of greater loss. As a result, the monetary policy does not
work.
6.
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Questions:
Why does the economic models unable to make correct predictions?
What lessons can China learn from the Financial Meltdown?
What should China do to contribute to the recovery of world economy?