However, Krugman also main-tains a pessimistic outlook on how a desired outcome could be achieved. This assessment is due to his belief that none of the traditional factors required for a sustained turnaround are dependable upon under the present circumstances. According to him, faced with a severe global financial crisis, recovery initiatives such as an export-led recovery based on surging exports and trade surpluses may be insufficient to overcome the problem. He said, "... Unless we can find another planet to export to, we cannot have an export-led recovery to look forward to."

Although uncertain about the methods in which the recovery process can successfully apply, the professor was of the opinion that the world had managed to avert the Great Depression version 2.0, clearly indicating that the present situation could have been much worse. He said that the combination of aggressive efforts such as deliberate global stimulus initiatives as well as the overall market's automatic stabilisers have successfully stabilised the world economy.

History lessons

The professor said, "The Asian financial crisis of about a dozen years ago was a warning, an omen. For many of the Asian economies (back then), the crisis was followed by dramatic recoveries, a phoenix-like recovery." However, that is not going to materialise this time due to the magnitude of the current collapse in world trade which initially gave a misconception that Asia could escape the fall. As explained, traditional measures based on historical trends would probably prove insufficient.

When asked later to predict a full recovery, he gave a forecast; based on an analogy of the 2001 recession which hit most Western countries; that a full recovery is possible within the next two or three years. He added that the recovery from the 2001 recession took about that time and therefore we should be prepared that it may take longer.

Krugman, the prudent

On how to achieve a sustainable drive forward, he replied that that was the US$640tr question. According to Krugman, five lessons can be learnt from this epoch - financial markets are prone to bubbles; the financial system is not safe; monetary policies cannot be used to resolve all problems; budget deficits are sometimes necessary; and Keynesian theories can support output and growth stimulation policies.

Without role models to carve out possible solutions, the professor recommended more stimulus packages with higher inflation targets and stressed the need for a more regulated as well as a restructured financial system. Not liquidating money and then proceeding with the current financial layout would be detrimental to the recovery process. He also added that business investment especially in areas such as green energy should be propounded.

On Asia, Krugman said that though it had been plunged into a manufacturing abyss, it might see an inventory rebound over the next few months. He also said that Asia should not restrict the flow of capital and that the idea of an Asian monetary fund to provide financial assistance to members "makes a lot of sense."