Economist Phelps Says U.S. Wealth May Take 15 Years to Rebound

By Alison Sider and Elliott Gotkine

June 22 (Bloomberg) -- U.S. households may take as long as 15 years to rebuild wealth lost in the recession, said Columbia University professor Edmund Phelps, winner of the Nobel Prize in economics in 2006.

“The only way we’re going to get a healthy, full recovery is over a long period of time, involving households rebuilding their balance sheets and companies in trouble rebalancing their balance sheets,” Phelps said in an interview today with Bloomberg Television. “There’s no silver bullet that’s going to get us into good shape quickly.”

U.S. household wealth fell by $1.3 trillion in the first quarter of this year, with net worth for households and non- profit groups falling to its lowest level since 2004, according to a Federal Reserve report released June 11. Wealth dropped by a record $4.9 trillion in the last quarter of 2008.

Phelps said that economic recovery will be unlikely until producers exhaust their existing inventories.

“When that happens there will be a sigh of relief that we’ve hit bottom,” he said in the interview from Paris. “Then we’ll see a little bounce in consumption demand” and “people won’t be bracing themselves at the prospect of losing their jobs,” he said.
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