Yale economist and housing guru Robert Shiller — who correctly predicted the U.S. housing collapse — now says the downturn might last up to 10 years.
“We are still experiencing a record price decline,” Shilller told German financial daily Handelsblatt.
“It is quite possible that house prices fall more strongly than they did during the global economic crisis of 80 years ago. The real estate crisis could last 10 more years.”
Shiller told the paper he supports the various government rescue packages and infrastructure spending plans being launched around the world but warned not to expect too much from them.
He said that confidence was as important as cash to a return to economic growth. “The crisis is above all a psychological phenomenon,” Shiller said.
Shiller also backed the idea of a “bad bank” to take on the toxic assets of the banks in order to quarantine the problem and get credit flowing normally again in the U.S. economy. He even supported nationalization of the banks if necessary.
“In America, we solved the savings & loans crisis in the 1980s with a bridge bank,” Shiller noted.
Shiller’s 10-year warning is a direct reflection of the disappearance of both easy credit and fear among home buyers that prices could fall farther still as the U.S. goes through its darkest recession in decades.
The Commerce Department on Friday said the U.S. economy slammed on the brakes in the final quarter of 2008, contracting 5.4 percent in the October-December period, much faster than the 0.5 percent decline in the third quarter.
"It was a bloodbath," Richard Yamarone, economist at Argus Research, told the Associated Press.
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