Get ready for seven years of weak economic growth and high unemployment, says University of Maryland economist Carmen Reinhart, an expert on financial crises.
“Whether one looks at advanced economies or a whole sample that includes emerging markets, the picture is one of lower growth during the decade that follows the crisis,” she told Bloomberg.
“We are already three years into this post-crisis window. The clock starts ticking in the summer of 2007.”
That means unemployment may stay above 8 percent for the next seven years, says Reinhart, co-author of “This Time Is Different: Eight Centuries of Financial Folly.” The jobless rate stood at 9.5 percent in July.
Economists are starting to talk about a lost decade for the economy, and Reinhart sees a 50 percent chance of that.
To avoid this fate, the U.S. should embark on tax increases and spending cuts in about a year, when the economy is stronger, she says.
“You want to not necessarily implement austerity right now, but you certainly want to announce it right now, with plans to deal with the deficit and debt in a realistic time frame,” she said.
Many economists agree with her, saying we need more fiscal stimulus first and then austerity.
“The economic case for additional government spending and tax relief is compelling,” Laura Tyson, head of the Council of Economic Advisers in the Clinton administration, wrote in The New York Times.
© 2013 Moneynews. All rights reserved.