Replacement for Bernanke should be considered: Stiglitz

Friday, August 7, 2009
By Vivien Lou Chen and Carol Massar, Bloomberg

NEW YORK -- Nobel Prize-winning economist Joseph Stiglitz said he expects a "very slow recovery" in the U.S. economy and that a replacement for Federal Reserve Chairman Ben S. Bernanke should be considered.
"There are lots of potholes in the road," Stiglitz, a Columbia University economics professor, said in an interview today with Bloomberg Television today. "There are problems in commercial real estate. We know that there will be more foreclosures in the mortgage market" and "we know we don't know the state of the banks."

Policy makers are seeing the first signs of a recovery from the worst economic slump in the post World War II era, and the risk of further shocks as unemployment approaches 10 percent. Credit markets are improving and yet "the fundamental problem of lack of aggregate demand is still there," Stiglitz said.

"It's going to be a slow, very slow recovery," said Stiglitz, 66, formerly chief economist at the World Bank and chairman of the White House Council of Economic Advisers under Bill Clinton.

When asked whether Bernanke should be reappointed so he can remain Fed chief after his current term expires Jan. 31, Stiglitz replied: "That's a hard question." A replacement is "something we ought to consider," he said.

The global financial crisis, which began with the collapse of the U.S. subprime-lending market in 2007, has led to US$1.55 trillion of writedowns and credit losses at banks and other financial institutions, according to data compiled by Bloomberg.

U.S. Recession

The turmoil plunged the world's largest economy into the recession, compelling the Fed to push the benchmark interest rate down to almost zero in December and to switch to asset purchases and credit programs as the main policy levers.

The Obama administration's focus on fixing banks "is important and necessary, but is far from sufficient," Stiglitz said. "The way we are putting money into the banks is a disaster" and "the most disappointing thing is the way they handled the problem of resuscitating banks."

The U.S. needs to invest more on infrastructure and technology, he said.

Stiglitz shared the Nobel in 2001 for work on problems that may arise in markets when parties don't have equal access to information.
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