What is Steve Forbes' recovery mantra for the US?

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Q: If he does not come back, do you think the consumer in China, Japan, and other emerging markets can make up for the kind of spend that the consumer was doing before the crisis?

A: They can do it to some extent. But each economy has got to make some reforms. In India you still need some institutional reforms to get this economy really moving the way it should and the government's got a lot of work to do there. China has to do more to get the entrepreneurs going. So, you get a genuine consumer market there, not just in the coastal cities but in the interior as well. Japan had its problems because of government spend and is still way out of line. Tax system is still anti-investment, anti-consumer. So, each country has got to make institutional changes to get the maximum growth.

Q: Obama's government seems to think that the best way to get the consumer back is to give him freebies. We have the cash for clunkers programme; we have got subsidies for new home owners. But you think that the best way to get the consumer back is create jobs?

A: And the way to create jobs is by lowering tax rates, having a sound currency, so that people are willing to take risks again. We did this in the early 1980s. We got a great 20-25-year run from it. But they have ignored those lessons.

Q: We have seen that unemployment in September has touched 9.7%. The government came and said that 8.9% would be the forecast from here. We have already overshot that. Do you sense is Washington is aware and taking steps to correct this?

A: Washington still believes that if you throw out money you will create prosperity. They don't recognise that is the equivalent of taking a pail of water from one end of the pool and pouring it into the other end. It doesn't increase the amount of water in the pool. So, when they give these rebate cheques for spend, they have to get it somewhere, and so it doesn't create sustained growth. You can create sustained growth by increasing incentives for people to invest.

Q: We were talking about the importance of the dollar being at least stable if you want investments to come back into the US. But the weak dollar policy was started by a fellow Republican George Bush. But how important is it really that the American currency stops weakening?

A: It is vitally important because if you have currency instability, people are going to take less risk. It is risky enough to invest in a commercial enterprise or in securities. But if you also have to worry about the currency risk, the political risk as well, you get less of that risk taking and the effective cost of capital for productive investments goes up. We saw this in the 1970s, we stabilised the dollar in the 1980s, interest rates plummeted from 21% down to 7% and we started a 25-year boom. So, we should have learnt, currency stability is good and cheapening the currency is just bad.

Q: What is the real danger there because the only real rival to the dollar is the euro and we know that the euro is not in very good shape? So, is a weak currency a real danger? The likelihood of a weak currency, how strong is that?

A: There is not going to be a replacement for the dollar short-term. There is no market even with the euro for the kind of depth that the US markets have. But that just means we all will suffer. We won't get the kind of prosperity we would have otherwise.

Q: The other worry that we have had in this part of the world is that in a crisis we see market and countries close themselves. It looked at the beginning that the US would not do that. But we recently saw them slap 35% import duty on Chinese tyres. Do you think that was an aberration on the part of the President?

A: That is the big question. Right now it does not look like an aberration. He has not promoted free trade; he has not done anything to get the Doha round back on track. He has done some of these other things like barring Mexican trucks from coming into the US, violation of our North American free trade agreement is not ask Congress to approve for free trade agreements, we have already negotiated with Panama, with South Korea, with Colombia. He has not pushed to complete a free trade agreement with a country like Malaysia where we have got some ongoing negotiations. So, it is not just an aberration. It looks like it is part of a policy that this is going to be the first President since Herbert Hoover back in the 1930s who is not a free trader, who doesn't move to reduce trade barriers. That is bad for the US, bad for the world.

Q: You don't think he is trying to nurture American industry, it has just come out of the ICU; nurture it a bit before opening it out to competition?

A: The tyre industry did not ask for these tariffs. So, it was a payoff to unions. It was pure politics, nothing to do with nurturing this or nurturing that.

Q: How do you look at assets other than equity? If you were to invest your money today - start from afresh - how much would you put in American equity and how much would you put in emerging market equity and how much would you put in gold? How much would you real estate?

A: Timing is a treacherous thing because you saw in the last year-and-a-half emerging markets crashed. Then in the last few months there was huge surge upwards including India. So if you try to time these things you are just going to get whipsawed. The best thing for investors to do is invest a certain amount of in goods funds each month and don't let emotions become your enemy in terms of equities and bonds - to the Jack Bogle rule, the founder of Vanguard, a large company "Own the same percentage of bonds as your age. If you are 40, 40% in bonds, of your 60%, 60% in short-term instruments, 40% equities, and the rest to a certain amount each month and realise your emotions are going to hurt you if you follow them.

Q: I was hoping to draw your views on real estate because we have seen real estate prices come back in India. People I speak to say that in America while home prices seem to have stabilised a bit but let us wait till November when the subsidies for first time home owners goes and we will really know what happens but one of the worries seems to be commercial real estate and they think that there could be dangers lurking there? Would you worry about commercial real estate in the US as well?

A: There has been a lot of worry and that's already been factored in the markets and that's why a lot of real estate investment trusts in the US actually have raised new equity because people know they have to do that and so there the key is going to be small businesses, if we get the credit system working again which would be hard to small businesses. You would not have the renegotiation of leases that you are going to have otherwise or people abandoning office space and breaking the lease. So this is a preventable crisis.

Q: I will come back to the first point - get employment going back, get the economy back on track in the US?

A: Get the flow of credit truly flowing again - not just for the big companies but for everybody.

Q: What would look at it as indicators because we like to look at the manufacturing index, we like to look at the consumer spend - the new home loan sales. Is there something we are missing there? Is there something else that you would look at? Is this the time of reset where you would be looking at some other indicators - not so important in the past but that would assume importance now for you?

A: Some of the quick things - look at the US dollar price and gold. If that remains high then the system is not fully working again. Look at the bank loans in the US - the volume is still to come down a little bit. So we have got to get that flowing again. So you are looking at things like that to see if the credit system is fully working again. Credit card outstandings- see if that starts to move again that this thing is for real otherwise it is going to be jagged.

Q: You have harped a lot on the need for a stronger dollar but what can the government do for a strong dollar? Last time we met you said that the Obama government had done nothing to repudiate the Bush's government policy on a weak dollar. But what can they really do in a time like this?

A: First announce that you want a strong dollar and you are going to take measures for it and that the Federal Reserve, our central bank, should announce that they are not going to monetize the debt of the Obama administration, which is the big worry. If they say that markets would heave a sigh of relief.

Q: But if you were in the Fed's shoes in a time like this - do you think there is no justification at all then for a weak dollar because a weak dollar does to an extent help US exports?

A: What you gain on exports you can more than lose on the distortions from your domestic economy and internationally, weak dollar helps prevent protectionist pressures. Weak dollar are a form of protectionism artificially increasing your price of imports and artificially lowering the price of your exports. Is that protectionism? We are supposed to be against that and so there is no justification for that kind of distortion. You pay a big price for it.