Krugman says worst of world economic crisis over

Published by rudy Date posted on May 20, 2009

SEOUL (AFP)–The worst of the global economic crisis is probably over but any early recovery is unlikely due to massive debts worldwide, Nobel prize-winning economist Paul Krugman said Tuesday.

“I share the optimism that the worst is maybe over,” he said in a speech to an international finance forum.

Various indicators suggest the pace of the decline has eased, said Krugman, a professor of economics at Princeton University in the U.S.

He said credit is beginning to flow, supported by large interventions by the U.S. Federal Reserve and other central banks to ease the stress on financial markets.

But Krugman said any talk of recovery is premature due to the massive over- leveraging of banks and excessive debt in the financial system and among households worldwide.

“We are left with all of that excessive debt and will have an extended process of global de-leveraging taking place,” Yonhap news agency quoted him as saying.

He called for tighter government regulation of financial markets to prevent a repeat of the crisis.

“Governments have to act as backstop for financial institutions,” Krugman said.

“We have to in effect extend conventional bank regulations to a very much wider range of institutions. And that will help.”

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