- MBS Program Should be Extended: Fed's Bullard
- Wall Street Finds Profits by Reducing Mortgages
- Microsoft, News Corp Weigh Online News Pact
- Warren Buffett, Bill Gates 'Walk & Talk' At Columbia
- Senate Democrats at Odds Over Health Care Bill
- What if a Recovery Is All in Your Head?
- Thanksgiving Week Stuffed With Economic News
- 10 Tips to Get Out of Debt
- This Season: Everybody's A Scrooge
- CNBC VIDEO: Warren Buffett & Bill Gates 'Walk & Talk' at Columbia University
- U.S. Stocks Slip, Dollar Rises
- How Stock Investors Can Play Holiday Travel
- Time Lapse World Series Is A Great Play
- Hirschhorn: Greed...or Fear
- My Top 10 Tech Toys for the Holidays
- iPhone a Better Gaming Platform Than Android?
- May Day For Dendreon
- 100% Mortgage Financing From USDA
MOST SHARED
- Wall Street Finds Profits by Reducing Mortgages
- CNBC VIDEO: Warren Buffett & Bill Gates 'Walk & Talk' at Columbia University
- Dems Snare 60 Votes to Move Ahead on Health Care
- Senate Democrats at Odds Over Health Care Bill
- South Korea Think-Tank sees 2010 GDP at 8-Year High
- Reliance Reportedly Offering $12 Billion for Lyondell
![]() |
The world economy needs a second stimulus if it is to avoid the fate of Japan in the 1990s when the country was stuck with years of sluggish growth, Nobel laureate and professor of economics Paul Krugman told CNBC Monday.
"The good news is that it does not look like the 2nd great depression. For a few months it did," Krugman said.
All indicators now point to the fact that the plunge has stopped, as jobs in the US are lost at a smaller pace and manufacturing and services seem to be stabilizing worldwide, he added.
But the sources of future growth are hard to pinpoint as the financial crisis has left the world with excess capacity and the possibility of high unemployment everywhere, according to Krugman.
"Right now I think the world as a whole kind of looks like Japan in the early 90s. Not a catastrophe, but we really don't know how we get serious growth going," he said. "Actually the slump globally has been much worse than anything Japan had during that lost decade."
More stimulus money is key for a sustainable recovery as fears of inflation are overdone, Krugman told CNBC.
"We really should have a second stimulus, we should have more stuff," he said, dismissing fears of price rises as a result of too much cash in the system.
"I think that's an old line from the great depression, that crying 'fire, fire' amid Noah's flood. I mean, we have no signs of inflation on the horizon. There is nothing in there that would be inflationary."
"You have to understand that putting money in the system, it mostly just sits there. It's quite easy to pull it out again if inflation starts to loom," he said.
However, the risk of a second round of the crisis in the medium run is high as a real revamp of the financial system has not happened, according to Krugman.
"At this point the prospects for major overhaul seem to be receding…because of the opposition in congress, because the industry - banks are profitable again, they want everybody to just go away," he said.
"The political will may not be there to do this. And that means that we may well be prepared for another round, another crisis some years down the pipe before we're actually prepared to change things," Krugman warned.
- Technology can make or break a fortune in the world of alternative energy.
- Warren Buffett and Bill Gates discuss the economy and other subjects with CNBC's Becky Quick.
- Many people are facing the holidays with substantially smaller incomes. Here’s how some are adapting.
- Jim Cramer is a proponent of stocks that pay healthy dividends, and here are his top five dividend plays.
- The homebuyer's tax credit jacked sales for a while, but 2010 is looking weak. Now what?
- CNBC’s technology reporter Jim Goldman guides you through the best gadgets to buy this holiday season.












