Joseph Stiglitz is one of the most quoted economists in the world. He won the Nobel Prize in 2001 for economics and boasts a very impressive resume. He also tends to be a bit outspoken and isn't afraid to say what he's thinking. So, here's what he said today about the economy on CNBC:
On Fannie and Freddie Mac & Wall Street
He thinks it's ridiculous that taxpayers are giving a blank check to Fannie and Freddie. They can basically continue to operate as they are and the government is on the hook to make up any shortfall. He thinks it's bad policy for the public to be bailing out CEOs that earn hundreds of millions of dollars for the bad decisions they have made. He also thinks there's a problem when we're asking the people who got us into this economic mess to help us get out.
On Economy
He thinks the economy won't perform in a V shape or a U shape but instead will be L shape. Down and then flat for an extended period of time. He doesn't think we're though the worst of it. Why?
- No contraction yet in state and local government - this will come.
- Housing still falling and will continue to do so for some time.
On Whether Markets Accurate Reflect Future Economic Expectations
Joe Kiernan, one of the CNBC hosts then asked an interesting question. If markets are efficienct and forward looking, shouldn't they already reflect the bad economic future? Stiglitz doesn't believe so. In his opinion, markets are unable to price in what's happening. Why?
1. Analysts unable to think across so many dimensions and so globally.
2. Most investors display wishful thinking. People don't want to admit they were wrong about quick recovery and have a built in optimism.
On Global Economic Prospects
He doesn't believe there will be a global recession but rather a significant global slowdown. China and India will continue to grow, although at a slower pace. But the slowdown shows that if the US sneezes the world still does catch a cold. "US consumption overwhelms everything."
This analysis is remarkably similar to the analysis of the economy put forth by Larry Summers, who is equally pessimistic about the short and medium term outlook for the economy.
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