Sri Lanka should be prepared for a prolonged external slowdown: interview

Nov 27, 2008 (LBO) – Sri Lanka should be prepared for a prolonged external slowdown as the world recovers from excessive debt brought on by paper money central banks, especially the Federal Reserve, says a Netherlands-based economist. Howard Nicholas from the Institute of Social Studies in the Netherlands spoke to LBO during a visit to Sri Lanka on the invitation of the Ceylon Chamber of Commerce.

During a previous visit to the island in March, Nicholas warned that the 2008 commodity bubble was unsustainable and would crash. He had given similar warnings before the dot com bubble crashed.

In this interview he speaks about the prospects for global growth and de-leveraging. He also engages in a spirited debate about exchange rates and the currency board, a stable monetary device that the world forgot with the advent of Bretton Woods system, an exchange rate arrangment created under pressure from the United States.

Politicians dislike currency boards because they cannot deficit-spend to buy votes. Economists also dislike currency boards because they cannot manipulate interest rates and exchange rates to boost ‘growth’.

Bretton Woods, mistake