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Recession reports - Mr Krugman sees it beyond 2011

Mr Paul Krugman, the 2008 Nobel economics prize winner...

Mr Paul Krugman, the 2008 Nobel economics prize winner, said that the world economy will likely feel the impact of the global financial turmoil for another 3 years at least.

Mr Krugman said that "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 the equivalent of Japan's lost decade in the 1990s, that we'll see 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 that "On top of that, we'll have a series of extremely severe crises in particular countries in trouble. We certainly see the roots of Argentina or Indonesia style crises, particularly in the European periphery."

As for the United States, Mr Krugman, who has previously said that a stimulus plan of at least 4% of the US gross domestic product is needed next year, said that amount might not be enough. He added that "If you're serious about the size of the hole that needs to be filled, that's actually modest."

Mr Krugman, who won the Nobel Prize for his work on the impact of free trade and globalization, said that 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.

He said that "We are probably in the US going to run a deficit of seven or eight% of GDP next year. That's clearly not something you can do indefinitely. If it's two years of massive stimulus and massive debts, that's okay. If its two years of that, and no sign that anything is getting better then I start to worry."

Dec 15, 2008 12:33
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