http://news.theage.com.au/breaking-...mist-gloomy-over-us-future-20090912-fl3n.html
Nobel economist 'gloomy' over US future
September 12, 2009
The massive debt being racked up by the United States to exit recession will thwart growth for decades while its "almost useless" financial sector needs deep reform, a Nobel economist said Friday.
"I have a gloomy feeling about the American economy over the next couple of decades," 2006 Nobel Economics Prize winner, Edmund Phelps of the United States, said on Friday at Poland's Krynica Economic Forum, known as the Davos of the East.
"I see the financial sector as almost useless in the promotion of prosperity in the United States," Phelps said. "It will have to be reformed and somehow, in principle competition, could do that over the decades but I don't think we can wait that long."
Moves by the US Federal Reserve to improve liquidity on capital markets have raised the threat of rampant inflation more than anyone is willing to admit, he insisted.
"The tremendous splash of liquidity created by the Federal Reserve is a threat - it does threaten inflation. Much more so than (US Federal Reserve chairman Ben) Bernanke acknowledges," he said.
"The salvation of the US economy lies in raising up to whatever level we can the innovativeness of the economy and that will require reform of the financial sector, reform of the business sector and more transparent and more pro-business policies on the part of the government," the Nobel prize laureate told journalists.
The massive debt now being accumulated by the United States on stimulus spending is a burden sure to thwart future investment in innovation and is harming the US's potential for future growth, Phelps insisted.
"As the economy bottoms out and recovers to a degree, there is going to be a massive level of government indebtedness and that can't be sustained. It's not unsustainable, it can be sustained only at the price of high marginal tax rates which, for a number of years, will cause a great deal of innovative activity to be deferred," he said.
Sparked by the meltdown of its financial sector, the US economy sank into recession in December 2007, in turn spurring the global economic crisis.
With Washington having pumped about $US800 billion ($A927 billion) in stimulus into its economy most forecasters are now predicting that gross domestic product will to turn positive in the third quarter after contracting about one percent in the second quarter and a massive 6.4 per cent in the first quarter of 2009.
© 2009 AFP
Nobel economist 'gloomy' over US future
September 12, 2009
The massive debt being racked up by the United States to exit recession will thwart growth for decades while its "almost useless" financial sector needs deep reform, a Nobel economist said Friday.
"I have a gloomy feeling about the American economy over the next couple of decades," 2006 Nobel Economics Prize winner, Edmund Phelps of the United States, said on Friday at Poland's Krynica Economic Forum, known as the Davos of the East.
"I see the financial sector as almost useless in the promotion of prosperity in the United States," Phelps said. "It will have to be reformed and somehow, in principle competition, could do that over the decades but I don't think we can wait that long."
Moves by the US Federal Reserve to improve liquidity on capital markets have raised the threat of rampant inflation more than anyone is willing to admit, he insisted.
"The tremendous splash of liquidity created by the Federal Reserve is a threat - it does threaten inflation. Much more so than (US Federal Reserve chairman Ben) Bernanke acknowledges," he said.
"The salvation of the US economy lies in raising up to whatever level we can the innovativeness of the economy and that will require reform of the financial sector, reform of the business sector and more transparent and more pro-business policies on the part of the government," the Nobel prize laureate told journalists.
The massive debt now being accumulated by the United States on stimulus spending is a burden sure to thwart future investment in innovation and is harming the US's potential for future growth, Phelps insisted.
"As the economy bottoms out and recovers to a degree, there is going to be a massive level of government indebtedness and that can't be sustained. It's not unsustainable, it can be sustained only at the price of high marginal tax rates which, for a number of years, will cause a great deal of innovative activity to be deferred," he said.
Sparked by the meltdown of its financial sector, the US economy sank into recession in December 2007, in turn spurring the global economic crisis.
With Washington having pumped about $US800 billion ($A927 billion) in stimulus into its economy most forecasters are now predicting that gross domestic product will to turn positive in the third quarter after contracting about one percent in the second quarter and a massive 6.4 per cent in the first quarter of 2009.
© 2009 AFP