by Xinhua writer Yang Lei
NEW YORK, Sept. 3 (Xinhua) -- Despite recent upbeat data, the U.S. economy
may not be in a "sustainable" recovery and still faces "significant" chance of
contracting again, Nobel laureate economist Joseph Stiglitz said here Thursday.
W-SHAPE RECOVERY
Speaking at a press briefing at Columbia University, Stiglitz said he
believes the prospects of a robust U.S. recovery are "very, very weak."
The former World Bank chief economist and professor at Columbia Business
School said he sees two scenarios for the U.S. economy. One is a Japanese style
"malaise" that the economic growth would remain low in a long-term period. The
other is a "W-shaped" recovery with a double-dip recession.
"It is not possible to predict whether we have a malaise or a W(shaped
growth pattern). But there is a significant chance of a W," he said.
"It is not as if the second dip is going to be as bad as the first dip," he
said, adding that instead, the economy "could just bounce along the bottom."
Stiglitz said it is difficult to forecast the direction of the economy
because "we really are in a different world" from the 1980s, when the United
States experienced another recession.
LEHMAN'S FALL
Stiglitz noted that the bankruptcy filing of Lehman Brothers Holdings Inc.
a year ago was a "consequence" rather than a "cause" of the global economic
crisis.
"It was the consequence of flawed lending practices and inadequate
oversight by regulators, including the Fed (the U.S. Federal Reserve)," he said.
"Financial markets had lent on the basis of a bubble -- which they had
helped created. They had incentive structures that encouraged excessive risk
taking and shortsighted behavior," he added.
Stiglitz said the global economy had been supported by the bubble and
excessive borrowing before the crisis, and the collapse of Lehman Brothers
accelerated the whole process of deleveraging.
"Whether Lehman Brothers had or had not been bailed out, the global economy
was heading for difficulties, a fact that seems increasingly evident as the
world sputters in its recovery, even as at least some banks are recording
massive profits," Stiglitz said.
U.S. gross domestic product shrank at a 1-percent annual rate in the second
quarter of this year, following a 6.4 percent pace of contraction in the first
quarter.
The drop was the fourth in a row, the longest contraction since quarterly
records began in 1947 and the deepest recession since the Great Depression in
the 1930s.
REAL LESSONS
Stiglitz expressed his concern over the financial institutions, saying that
they are "too big to fail" and "too big to be managed."
He said one of the real lessons to learn from Lehman Brothers' bankruptcy
was that banks should never be allowed to grow so big and so intertwined that
their failure would cause a crisis.
"If they are so big, their risk taking has to be greatly restricted.
Prevention is what is required," Stiglitz said.
A critic of the U.S. government's approach to deal with the banks in the
crisis, Stiglitz called for alternative approaches.
"There are many choices between the blank-check approach to saving the
banks pursued by the (President Barack) Obama administration and the approach of
Paulson-Bernanke-Geithner shutting down the banks and hoping that everything
will work out in the end," he said.
The then and current treasury secretaries Henry Paulson and Timothy
Geithner, as well as Fed Chairman Ben Bernanke have forged a committee last year
in the face of the crisis.
In an interview with Xinhua earlier this year, Stiglitz said he strongly
supported the idea of creating "a financial product safety commission" which
could provides consumer protection.
In a statement released on Thursday, the U.S. Treasury Department said it
wants a global agreement that requires banks to increase their capital cushions
to be reached by the end of next year.
Later this month, leaders of the Group of 20 nations will meet in
Pittsburgh and discuss measures to overhaul supervision of the global financial
system.
Special Report:
Global Financial
Crisis
