The U.S. economy is in bad shape, and more quantitative easing by the Federal Reserve is the best way to bring it back to health, says Nobel laureate economist Edmund Phelps.
He favors a $1 trillion package of securities purchases by the Federal Reserve, which meets next week to discuss its policy.
“I’d like to see them err by having a little too much stimulus rather than too little,” Phelps tells Bloomberg. “We’re flying blind, but $1 trillion isn’t too much in relation to the total wealth of the economy: $80 trillion to $90 trillion,” he said.
Still, it’s markets that will have to bring the economy back, Phelps says. “The only way to get to full recovery is through strong investment demand,” he explains.
“I’m hoping that the weakening dollar that quantitative easing brings will finally be a chance for the U.S. to pump out exports.”
Phelps hopes currency wars can be avoided. “The U.S. is a sick economy. We deserve a chance to heal,” he says. “The best way to do that quickly is through exports, and that doesn’t mean the rest of world has to go on bread and water.”
David Levy, chairman of the Jerome Levy Forecasting Center, isn’t too optimistic that things will work out for the U.S. economy.
Instead of recovery, “domestic profits eroding, corporate earnings becoming increasingly disappointing, and a 60 percent chance of a recession in 2011” are what he sees ahead, Levy tells MarketWatch.
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