University of Chicago Professor Eugene Fama, who is one of the three American who won the 2013 Nobel Prize in Economics, said a a worldwide recession remained a real risk next year as a barrage of bloated public deficits have been seen on both sides of the Atlantic. Fama shares the top prize of SEK8 million or USD1.2 million with Robert Shiller and Lars Peter Hansen.
Fama added on Saturday that the high debts incurred by both United States and Europe pose an ongoing threat to the world's economy.
"There may come a point where the financial markets say none of their debt is credible anymore and they can't finance themselves. If there is another recession, it is going to be worldwide," Fama told Reuters in the snow-covered Swedish capital, where he is scheduled to receive his prize on Tuesday.
When asked about the strong labor market data released by the US Federal Reserve this week, Fama said he is not reassured with the data. Fama is known as the father of modern finance and will be sharing the prize with Shiller and Hansen for their research into asset bubbles and market prices.
"The jobs recovery has been awful. The only reason the unemployment rate is 7 percent, which is high by historical standards in the U.S., is that people gave up looking for jobs. I just don't think we have come out of (recession) very well," Fama said.
The unemployment rate of the US was seen reduced to a low 7% in November, which was a five-year low for the US. It also indicated that private sector employers hired more workers as was expected.
Fama was also asked by Reuters regarding the current stock rally. The US university professor said companies as a whole had become more efficient since the financial crisis in 2008 to 2009.
"The response of companies after the recession was to slim down, get much more effective and they got very profitable, so their prices continue to appreciate," Fama concluded.
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