Crisis not over yet; see more pain, says Robert Schiller

Excerpts from Your World at 10 on CNBC-TV18 Watch the full show » RELATED NEWS US deficit could jeopardise recovery: Obama Davos: Banks, regulators agree on need for global response

Where is the world economy headed? That's the question that has been on everyone's mind in the week long sitting, World Economic Forum, that just concluded in Davos.

Robert Schiller, Professor of Economics at the Yale University, says well the world has had a spectacular recovery so far, it's not quite out of the woods yet. "I am not saying we are in for a depression, we have already been in this crisis for two-and-a-half years already and you could go two-and-a-half years or more again."

Here is a verbatim transcript of the exclusive interview with Robert Schiller on CNBC-TV18. Also watch the accompanying video.

Q: What sense do you get of where in the recovery process the global is and what are the likely challenges to that recovery in the course of this year and next?

A: We have seen a spectacular rebound since the last WEF. We have seen stock markets soar, also pick ups in housing markets in the US and UK. We have also seen confidence come back, it looks like the international co-operation on stimulus and regulation has encouraged people and things are looking better. However, it's still uncertain.

Q: When you say it's still uncertain what is it that you are factoring that could potentially happen in this year or next, is it maybe the result of premature exit strategies, is it currency issues, is it inflation in countries like India and part of the emerging markets? What is it that you are factoring in that you think could weaken this recovery process?

A: The recent recovery was a wonderful experiment in economics, but there isn't uniform support for these things. One thing is that people start to worry about the debt incurred and that can cause a political backlash that would stop any further such efforts even if that is still needed.

In the US, from where I am, the situation has evoked much anger and it looks like we may not have the support to continue with such policies, so we would have an exit earlier than we would like and that might pound the economy.

Q: President Obama spoke about curtailing government spending and therefore trying to bring the fiscal deficit situation in control, that must have come as good news to most economists because everyone was concerned about what the deficits would mean for the interest rate curve?

A: He is right that we have to have a plan to constrain government spending eventually and not immediately and that's the way you help reassure the market. The US's debt has been popular investment for people all over the world because apparently they have trust in the US Government. So our President is fulfilling his role in reassuring investors that the US is going to get back to fiscal stability.

Q: That is not good news for you because you think any talk of an exit strategy this year would be an exit too early?

A: I don't think he means an exit this year.

Q: But any coordinated action between the President and the Fed?

A: He is doing pretty well, if we talk about the long-term which you don't let that affects your short-term actions.