High Unemployment to Continue Through 2011?

" Thought of the job market was going to be getting better next year a lot of people say it might you might want to think again our next guest says that unemployment is likely to continue to be high. Well into 2011. Joining us now as Carmen Reinhart -- as co author of the book this time is different. She's the director of the University of Maryland center for international economics. And joins us now Carmen is buy and sell them thanks for coming on. Thank you for having me this I know it's a very controversial. A topic because there's certain humanitarian ethical moral grounds toward providing people benefits. But as as Germany learned with their -- reform sometimes. And I guess your studies back this up right that sometimes providing longer jobless benefits. Extends unemployment. Simply by removing necessarily be that absolute push. To find a job correct."

" Well the experience with the advanced economies which have the longer reliant unemployment benefits. Is that unemployment. Does tend to rise longer after the crisis. Then in emerging markets but very quickly let me say also in emerging markets you have the problem of underestimating. True unemployment. There's a huge amount of underemployment not captured in those numbers show it's it's it's not a one sided."

" Yeah I mean did departure forms in Germany -- aware of them you know they had very generous unemployment benefits when enacted these plans actually remove benefits. They found that -- employment went up and we know as we show there are millions of jobs that are currently out in the marketplace and it's hard people to get them as well. But why is it ruled do you think that joblessness will continue to be higher. Then many other people believe it well."

" Well one of the issues we highlight is that the recovery from financial crises are not like you're. Run of the mill recoveries from recessions. In the post war. They are longer because credit activity isn't normal banks do not lend. Housing markets which are very. Labor intensive. Continued depressed for longer periods so. It's a protracted recovery process. And on average unemployment. Rises by about seven percentage points. During the post. Pick crisis period which would take -- to around 11%. In our case."

" Do you believe that. Fiscal stimulus quantitative easing lower interest rates a weaker dollar. That the measures that we are either taking actively or allowing to happen on their own without intervention. Will bring the economy up faster than it would without those measures."

" Yes I think that the death. And duration of the recession would be longer absent those measures I think we're we're doing a lot of foot dragging. Is in. Getting the bank balance sheet back in order I think banks will lag this recovery will be a drag on the recovery and I think there. We haven't done as much as we could."

" Well I guess that's the other question what would be a downside in your view to all the fiscal stimulus you know everything comes -- the cost right. Nothing is nothing is just Linear so what's the downside to this."

" Well I think the downside we're already seeing we're running we're running huge budget deficits and we're accumulating a lot of debt. And where there is a lot of debt. The the risks. Begin to rise in terms of the inflation risks down the road this is not tomorrow or even next year. But when you start looking at a longer horizon a lot of debt. Creates incentives for inflating away debt. It also risks downgrades mean Japan is a country that lends to the rest of the world and yet. Acid piled on the debt it was downgraded. Several times. Which is not and an easy project to look forward to."

" Your book this time is different if we look back -- history people want to make comparisons depression the recession of the seventies etc. In your historical analysis on they've gone way back. Where -- we stack up historically. Carmen and is this time really different."

" Well. The -- is this time it is not different and in an optimistic scenario. We will recover. Like. The nordic crises countries not like the depression. You know worst case scenario which -- some possibilities. You recovery will simply be delayed like Japan so we have to look very carefully. As the Japanese crises of the 1990s. And trying not to repeat some of those mistakes. In handling. Of the banks and in reversing. They have the fiscal and monetary policy stance."

" Carmen Reinhart we appreciate your time the book this time is different thank you so much Carmen we look forward to seeing you again on Fox Business."