US and world economy depressed till 2011 – says Nobel Economics Prize winner

The world economy will likely feel the impact of the global financial turmoil for another three years at least, the 2008 winner of the Nobel economics prize, Paul Krugman, said.

“We could easily be talking about a world economy that is depressed into 2011 and even beyond,”

“The scenario I fear is that we’ll see for the whole world†…. a world of zero interest rates and inflation and no sign of recovery and it will just go on for a very, very extended period,” he said.

As for the United States,†he previously said†a stimulus plan of at least 4 per cent of the US gross domestic product is needed next year however on Monday he revised that saying that amount might not be enough to prevent a further decline in the economy. It’s only†enough to prevent a sharp decline”.

The falling US housing market, which triggered the global financial crisis, will probably continue to weaken, he said, pointing out that recent estimates show “we have another 10 to 15 per cent to go”.

Krugman, who won the Nobel prize for his work on the impact of free trade and globalisation, said Washington should not hesitate to spend on infrastructure that would provide long-term benefit to the country, even if it means running up a high deficit in the short term.

“We’re probably in the US going to run a deficit of 7 or 8 per cent of GDP next year. That’s clearly not something you can do indefinitely,” he said.

“If it’s two years of massive stimulus and massive debts, that’s okay. If it’s two years of that and no sign that anything is getting better, then I start to worry,” he added.

article excerpts SMH