Magazine article Global Finance

Economic Chemotherapy

Magazine article Global Finance

Economic Chemotherapy

Article excerpt

Global Finance sat down with economist Robert Brusca, head of consultancy FAO Economics, to discuss the global outlook, the future of Greece and the problem with current-account surpluses and deficits. Brusca has been a member of the Federal Reserve Bank of New York and held the post of chief economist at Nikko Securities.

Robert Brusca doesn't mince words. He is convinced that any solution to the global economic crisis will require fundamental changes in how we all do business and conduct trade. More to the point, those solutions will be painful.

Global Finance: How are managed exchange rates and current-account surpluses and deficits part of the problem?

Robert Brusca: Nobody has wanted to talk about exchange rates and how they are managed. As a result we have countries that have had nothing but surpluses and deficits for 10 to 12 years in a row. There are a lot of countries that have these exchange-rate-targeted growth policies, and they pursue this. It's one of the reasons why the US is in such trouble: They run their exchange rate policy to have a current-account deficit, which means they acquire dollars that they don't really need and don't really want.What happens if people no longer want to hold the dollar as the reserve currency?

On the other hand, everyone is trying to build a currentaccount surplus by exporting. Everyone thinks it is their birthright to export. But ironically, in this environment, it's surplusrunning countries that will be hurt.

GF: Is that because there is no demand?

Brusca: The most precious thing in the world is domestic demand, and that's what we have a shortage of. And, oddly, the deficit countries are among the stronger countries and the surplus countries are among the dangerous countries, which goes against the grain of conventional economic thinking.

OF: You're saying that as a deficit-running country the US hasnt been hurt as much as its counterparties? …

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