EFTA01384455

18 September 2017 Long-Term Asset Return Study. The Next Financial Crisis • Having said that, crises tend to have a large element of unpredictability. If they didn't then surely more would predict their imminent arrival. So while we highlight a lot of the main global vulnerabilities in this report, history would tell us that there is still a chance that when the next crisis comes its origin will take us by surprise to a certain degree. As will its timing. In the remainder of this executive summary we highlight the conditions that have encouraged crises through history and the main areas of worry as to why we may be vulnerable for another financial crisis relatively soon. • Periods with a higher number of crises/shocks coincide with higher levels of debt.... ( Figure 2: G7 Government Debt to GDP (left) and US Total Debt to GDP by sector [cumulatively stacked, right) - both graphs with DM Financial Shocks (% of countries) on RHS axis 160% 140% 120% 100% 80% 60% 40% 20% ADM Shocks 1% of Countries, RHS] Govt. Debt (% of GDP. LHS) 100% 90% 8090 70% 60% 60% 40% 30% 20% 10% 0% San Owner In Obis! list al Catlin NO Lb emat bib: eon oansksIve ecessass dots to 000 comes:et le tool slibl le Mel 400% - 350% 300% 250% 200% 150% • 100% - 50% 0% ISOM OM Shocks IRMS1 GSEkkgency nn an...Caot:fete i I t , I i ase aN I of• ournees' Government Financial Household 19'9 10:1 1953 1965 1977 1939 2031 2013 • ...and with it higher budget deficits. G7 Government Debt was only previously higher with impact of WWII and before the early 1970s, persistent budget deficits only really existed in war time. Now a permanent feature. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% I Figure, 3: US Budget Surplus/Deficit (% of GOP, lett) and global budget deficits (lY• of GOP. right) - both graphs with DM Financial Shocks (5,'• of countries) on RHS axis 10% 5% 0% -5% •10% -15% -20% -25% -30% -35% A DM Shooks [RHS] Surplus/Deficit (m, of GDP) Wars Largest peace time deficit c'73 m Le?, m co to .e) Col ',So' Son Dearly Bank Gbh.? Frianaat Oat /two, 100% 90% 80% 70% 60% 500/0 40% 30% 20% 10% 0% 10% a DM Shocks [RHS] DE —IT FR US UK 5% a SP ---••••JP ay, fa‘ 0% -5% -10% -15% 1950 1959 1968 1977 1986 1995 2004 2013 • We think the final break with precious metal currency systems from the early 1970s (after centuries of adhering to such regimes) and to a fiat currency world has encouraged budget deficits, rising debts, huge credit creation, ultra loose monetary policy, global build-up of imbalances, financial deregulation and more unstable markets. Page 4 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Deutsche Bank AG/London CONFIDENTIAL - PURSUANT TO FED. R. CRIM. P. 6(e) CONFIDENTIAL DB-SDNY-0084653 SDNY_GM_00230837 EFTA01384455