KUALA LUMPUR – The United States is at risk of sinking into deflation and president-elect Barack Obama has no choice but to put the country further into debt, former US president Bill Clinton said Friday.
"The big risk now to America and the world is deflation, contraction, dropping asset prices," Clinton said after giving a lecture in the Malaysian capital.
"We have to stimulate the economy, which means that in the short run he will have to take America into even more debt. There is no alternative."
Clinton, whose wife Hillary is set to become the next US secretary of state, said in a question-and-answer session that the situation now was very different from when he was elected in 1992 and when he presided over a golden economic era.
"The economic crisis we have now will not permit president-elect Obama to pursue the economic policy I did. That would be irresponsible now," he said.
He said that when he was elected, America was suffering from too much debt, insufficient savings and high interest rates that inhibited economic activity.
"Today interest rates are low but there is no money in the system ... and asset values are dropping," he said, urging Obama to address the crisis of negative equity in homes.
"He has to put a floor under the asset values and then use the government's spending ability to stimulate economic activity. Then when we resume growth we should adopt a more conservative and traditional budget policy," he said.
"But for now he cannot do that."
Obama - who will inherit a mountain of debt from government bailouts aimed at addressing the crisis - has vowed to jumpstart the economy, create 2.5 million jobs and give tax cuts to the struggling middle class.
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