Question 1: Your new book was recently released by J. Wiley & Sons. In the book you argue that the current International monetary system is in danger of collapse. Could you explain why you believe the present international trade system is a danger to all of us?

Answer: It is the imbalances in the international trade system rather than the system itself that poses the danger. The United States’ Current Account deficit is now $60 million AN HOUR! It increased 28% in 2002 to half a trillion dollars, an amount roughly equivalent to 5% of US GDP. This unprecedented trade imbalance has created extraordinary disequilibrium in the global economy. The countries that build up large stockpiles of international reserves due to large current account or financial account surpluses—such as Japan in the 1980, the Asia Crisis countries in the 1990s and China today—develop bubble economies. When those bubbles pop, as they inevitably do, they leave behind banking crises and excess capacity. The governments of those countries must then go deeply into debt to bail out the depositors of the failed banks. At the same time, the excess capacity in the economy results in deflation. Economic bubbles and systemic banking crises can be expected to reoccur and deflationary pressure can be expected to persist so long as the US Current Account deficits continue to flood the world with dollar liquidity.

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