Nilsson was addressing the local business community on developments affecting the region's economies in the short to medium term. In his presentation, he also noted that the extent to which the Caribbean is affected by a correction in the US economy will depend on how hard the US economy hits the brakes when its current economic situation falls apart.
"There has been tremendous growth on Wall Street, particularly in technology stocks, but the new economy will also face the same fundamentals when investors get over their love affair with the Internet and begin to separate the good stocks from the chaff and the losers fall off.
"One of the main indicators of the looming US economic problem is the balance of payment figure. Although a valiant effort is being made to reduce the Government debt, the balance of payment deficit continues to grow at a rapid pace. And, no one seems to be paying any attention to it.
So far, the economic growth that the US has been experiencing has been funded by the inflow of foreign currency and investments. Foreign investors, in particular, have been bullish about the US economy and they are buying up stocks and creating the boom on The Street.
However, almost all of the inflow is being used to purchase foreign goods and is immediately flowing back out of the system. The fundamentals are, therefore, weak and the economy will begin to pull back.
The only problem - particularly for the Caribbean, is that the longer the situation persists, the harder the correction will be and the more extended the recession that follows.
He said there was an opportunity for the Federal Government to deal with the problem, but its efforts at slowing the economy have seen only limited success. This is because the effect of adjusting economic tools, such as the money supply and interest rates, may not be as effective, because the US economy is more open than it has been in the past.
The Federal Government will also have to estimate when the economy has slowed enough and loosen interest rate restrictions on a timely basis, as they would not want to trigger a recession.
"What has delayed the inevitable recession has been the persistent strength of the US dollar. Many American tourists in Europe are shocked when they see how inexpensive things are, in France and Germany in particular."
He said despite the economic situation, the US dollar's strength is a direct result of deliberate actions of European and Far East Governments. They consider a strong US dollar to be important for their own economic prosperity. Thus, they have been buying US dollars to maintain the monetary status quo.
"By buying the dollar, it remains strong against their own currencies. Doing this makes their goods more attractive to American buyers. However, it also prevents the market system from automatically adjusting for the US balance of payment deficit, when the dollar should be devalued against other world currencies.
"Caribbean people can enjoy their good fortune now. However, when the correction sets in, it will also affect our economies, as the US has traditionally been a major trading partner for most countries in this hemisphere.
"Foreign goods will become more expensive and, therefore, less competitive. Preparation for this inevitability must begin now. It is important to do the basics - to explore ways to cut costs, improve quality, and retool to become even more competitive, while seeking out new markets where you may have a competitive edge."
He said that emerging economies or those that show underlying strength that have strong currencies should be considered. Thus selective countries in Latin America and Europe should be good targets.
Coaxed on by the uncertainty of the US presidential elections and high fuel costs, the first signs of the recession came with the recent dramatic declines on Wall Street, a larger than expected contraction of key economic indicators and initial reports that the Christmas sales forecasts will not meet retailers' targets.
Saying the American economy is "not as healthy as people think," a US manufacturing group also urged the Federal Reserve (Fed) to cut interest rates as early as last December to stop the nation from sinking into a recession.
"We think that the Fed's interest rate policy is more than the economy can deal with as it begins to slow down," said Jerry Jasinowski, president of the National Association of Manufacturers, at a news conference in early December.
"The chances of this economy going south are greater if we continue to ignore what is happening on the economic front and we are going to see this situation deteriorate a lot more."
Agreeing with Nilsson, Jasinowski pointed to the recent, steep drop in stock prices, higher energy costs, uncertainty over the presidential election and the high value of the US dollar against other currencies as issues posing a threat to the US economy.
The Fed, citing a strong risk of inflation sapping the strength of the blockbuster US economy, jacked up interest rates six times between June 1999 and last May, raising short-term rates to the highest level in nearly a decade.
The Fed's rate-setting Federal Open Market Committee was scheduled to meet on December 19 amid widespread expectations that it will leave interest rates unchanged for the fifth meeting in a row.
But Jasinowski said this action will not be enough by the Federal Reserve. Its post-meeting statement should at least drop the language that the powerful central bank was still worried about inflation. This wording signals it may need to raise rates even further.
"We would be extremely disappointed if they didn't remove that bias," he said.