Friday, September 4, 2009

Stiglitz: U.S. Economic Recovery May Not Be Sustainable

An update from Nobel prize winner Joseph Stiglitz: he says that the U.S. economy faces a significant chance of contracting again. “It’s not clear that the U.S. is recovering in a sustainable way,”.

Stiglitz said he sees two scenarios for the U.S in the next few months:

1. A period of “malaise,” where consumption lags and private investment is slow to accelerate.
2. A rebound fueled by government stimulus that’s followed by an abrupt downturn -- an occurrence that economists call a “W-shaped’ recovery.

“There’s a significant chance of a W, but I don’t think it’s inevitable. The economy could just bounce along the bottom.”

Stiglitz said it’s difficult to predict the economy’s trajectory because “we really are in a different world.” We have seen this beig said before this week!

As for the big banks that were are the center of the financial crisis, he says “These institutions are not only too big to fail, they are too big to be managed”.

As to whether the U.S. needs more stimulus: “wait and see, we did have a very big stimulus, and that stimulus has added to economic growth and will be adding in the current quarter, but the question going forward in 2011 is the stimulus is coming off, and that’s a negative.”

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