“When governments seek to manipulate exchange rates for competitive advantage, it rarely ends well,” White House economic adviser Larry Summers said at the Yalta European Strategy Annual Meeting this past weekend.
Summers stressed the need for reducing global imbalances, which require both smaller surpluses in surplus countries and smaller deficits in deficit countries. Regarding the U.S. economy, Summers reiterated President Obama’s pledge to double exports in the next five years. He added that growth, “while still clearly unsatisfactory, is positive. The economy is growing. The process of recovery is underway.”
When I asked Summers if he is worried about America’s budget deficit, he said only in the long term. In the short term, Summers says the focus must be on growth:
There is no prospect that we will achieve fiscal health without the restoration of satisfactory growth in the United States and in the rest of industrialized world. That’s why putting people to work is also a central imperative for our economy. I think that other nations have to recognize that as the United States reduces its budget deficit, that, of course, means the government will be providing less of the demand energy that pushes the economy further. So that demand energy will have to come from other places, which goes to the question of the global growth strategy, goes to policies in other countries that either promote surpluses or very severely limit trade deficits and rely on the rest of the world, including relying on the United States, for growth.