The United States may go through a “lost decade” of stagnant economic growth similar to Japan's experience in the 1990s if Washington yanks stimulus money out of the economy too soon, says Richard Koo, chief economist at the Nomura Research Institute, the research arm of Japan's largest brokerage.
“This isn’t a cold. It’s more like pneumonia,” Koo told Bloomberg News.
“We still need more government spending,” adding it could take “three to five years to get out of this mess, even under the best of circumstances.”
Koo and other noted economists such as Nobel laureate Paul Krugman believe U.S. economic recovery expected for the latter half of this year will be short-lived if the Obama administration withdraws stimulus money.
The administration is belatedly trying to narrow a record $1.4 trillion budget deficit and thus boost the sagging dollar.
As an example, Koo says, look to Japan, where an asset bubble burst in 1990 and left companies repaying debt instead of taking on new projects that would have refueled economic growth via continued stimulus.
“When we see the private sector coming to borrow again, I’ll be the loudest person on earth arguing for fiscal reform. That’s the exit,” says Koo.
Nevertheless, White House Officials say stimulus spending has already kick-started the economy and will do little to help out next year.
“By mid-2010, fiscal stimulus will likely be contributing little to further growth,” says Christina Romer, the chair of President Barack Obama's Council of Economic Advisers, according to the Associated Press.
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