The U.S. could face a prolonged economic downturn due to its subprime mortgage woes, but is unlikely to plunge into a recession, Nobel economics laureate Joseph Stiglitz said Thursday.
Rising defaults on U.S. subprime mortgages have increased risks to the economy, with a worsening housing slump, credit problems and turbulence in global financial markets, said Stiglitz, a former World Bank chief economist who is here to attend a conference.
Some 1.7 million Americans may lose their homes due to foreclosures and bankruptcy this year, piling further pressure on house prices, he said. Wages have stagnated although the U.S. gross domestic product was some 20 percent higher now from six years ago, he said.
"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 (U.S. 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."
Stiglitz said the credit crunch was a "totally predictable disaster" due to U.S. President George W. Bush's economic policies in 2001 when Bush cut taxes for the rich, slashed interest rates and encouraged people to borrow more than they could afford to stimulate the economy.
America is living beyond its means, borrowing some US$850 billion (