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Many people are comparing the financial crisis to the Great Depression. Will it really be that bad?
It's going to be bad, very bad. We're experiencing the worst downturn since the Great Depression, and we haven't reached the bottom yet. I'm very pessimistic. Governments are indeed reacting better today than during the global economic crisis. They're lowering interest rates and boosting the economy with economic stimulus plans. This is the right direction, but it's not enough.
The American government has committed over a trillion dollars to save the banks and $789 billion to boost the economy. Do you think this is too little?
I do. More than $700 billion sounds like a lot, but it's not. On the one hand, a large part of the money will first be given out next year, which is too late. On the other, a third of it is drained away by tax cuts. They don't really stimulate consumption, because people will save the majority of that money. I fear that the effect of the American economic stimulus plan won't be even half as big as expected.
At least governments worldwide are bracing themselves against the recession, as opposed to the global economic crisis where they accelerated the recession through their savings policy.
That's right. That's why I'm confident we'll get off lighter than during the Great Depression. On the other hand, there's a series of developments that make me very anxious. The state of our financial system, for example, is worse than it was 80 years ago.
Hundreds of banks collapsed in the U.S. at that time. Today most of them are being saved by the government. What's so bad about that?
The banks that survived 80 years ago continued to lend money. Today many banks aren't lending money anymore, above all the large investment banks. This will deepen the crisis.
Joseph Stiglitz: "It's going to be bad, very bad" | Salon News
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