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We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression.

June 30, 2010 (Hamsayeh.Net) - Many more leading economists are joining the chorus of condemning the latest G20 decision to reduce global deficits by implement sweeping cuts within the next several years.

Cutting down those huge deficits, according to G20 group countries, would be the only solution for future economic rebound of their mostly oil-dependent economies, except of course a small number of G20 countries like Saudi Arabia, Russia, Mexico and Indonesia with their comparatively smaller scale economies that are supposed to feed the rest during the upcoming economic downturn.

One of those distinguished economists, Paul Krugman, wrote in his NT article arguing the G20 proposed spending cutbacks come at the worst possible time given the current state of global economy. ‘Around the world - most recently at last weekend's deeply discouraging G-20 meeting - governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending,’ he said. ‘Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline - on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses,’ he added.

The main fear is if governments begin to implement sweeping cuts all at the same time the global economy would stop functioning, leading to massive unemployment, deflation and poverty. According to Krugman, ‘we are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost - to the world economy and, above all, to the millions of lives blighted by the absence of jobs - will nonetheless be immense.’

The main fear is if governments begin to implement sweeping cuts all at the same time the global economy would stop functioning, leading to massive unemployment, deflation and poverty.

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