The economy is headed for a “very long and damaging economic downturn” that will not see any recovery in 2009, well-known economist Martin Feldstein said on Wednesday.
“We’ve got a long way to go before this [economy] turns around,” he told CNBC and said this recession is “worse than anything we’ve seen since the 1930s.”
Feldstein, former chief economist for President Reagan and now president emeritus of the National Bureau of Economic Research, said the Federal Reserve’s recent efforts to stimulate the economy would be ineffective in the long run because they are not targeting the real problem that is causing the downturn.
“I the monetary policy is not working because the credit markets are dysfunctional,” said Feldstein. “So the Fed is being helpful by providing credit and stepping into the commercial paper market, but that doesn’t’ really make credit available through normal channels to responsible borrowers.”
Feldstein also criticized Obama’s stimulus plan, saying that although there might be a temporary upturn, it will last no more than five months. Like the Fed’s actions, Feldstein said the stimulus package does not target the real problem in the economy.
“I think the way the stimulus package was put together was very rushed—a much too much responsibility to the congress, too little guidance. So while it was a big package, it was not a very effective package in terms of stimulating the economy,” he said. “It will raise the level of GDP by a little bit and that will look like an increase in the growth rate. But I think nothing fundamental will have changed. We will continue to see the economy sliding down.”