Krugman says too early to exit stimulus

“Under the best of circumstances we’re going to have years before we return to anything that approaches reasonable levels of employment in the major advanced economies,” Krugman told the World Knowledge Forum, an annual conference sponsored by a South Korean business newspaper.

“That means staying with these very nonstandard policies for an extended period,” he said. “It means keeping interest rates close to zero for a very long time.” Krugman’s remarks come amid a debate over “exit strategies” — or when the extraordinary measures such as ultra low interest rates and other financial and economic support measures put in place to fight the global economic crisis should start being withdrawn.

Fiscal responses
Krugman said he is worried by the increasing number of voices calling for an end to the unconventional monetary and fiscal responses, which he credited with saving the world from sinking into depression.

“There have been some amazing statements by members of the Federal Reserve system, saying that we may need to start raising interest rates even before unemployment starts to drop,” he said. He called it “alarming because it does bring back echoes of the Great Depression.” Krugman said according to his calculations, the United States should avoid exiting from its measures until the unemployment rate falls to “roughly 7 per cent, which is a development that is at least two years and probably much longer away.” The US unemployment rate in September stood at 9.8 per cent, the highest since 1983.

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