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US could face prolonged economic trouble: economist

"Mortgage payments are going up, house prices coming down, incomes are stagnating. It's not a pretty picture. So the dynamics could unravel more and where it stops, we can't be sure."

Joseph Stiglitz, Nobel Prize laureate in economics

The US could face a prolonged economic downturn as a result of its subprime mortgage troubles, but it is unlikely to plunge into a recession, Nobel Prize laureate in economics Joseph Stiglitz said yesterday.

Rising defaults on US subprime mortgages have increased the risks to the economy, with a worsening housing slump, considerable credit problems and turbulence in global financial markets, said Stiglitz, a former World Bank chief economist who is here to attend a conference.

"Mortgage payments are going up, house prices coming down, incomes are stagnating. It's not a pretty picture. So the dynamics could unravel more and where it stops, we can't be sure," Stiglitz told reporters on the sidelines of the conference.

"We don't know how well the [US Federal Reserve] will respond. The lack of transparency means we don't know how deep the problem is," he said.

"The most likely outcome is that it will be a rather prolonged slowdown but not a recession," he said.

Stiglitz, who won the Nobel Prize for economics in 2001 and is the author of Globalization and its Discontents, indicated that countries in East Asia may not necessarily be affected severely by the US fallout, since the region has amassed large reserves and the countries are much more resilient after having rebounded from its own severe financial crisis a decade ago.
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