PRINCETON --  The American fiscal system and economy avoided a total meltdown in the 2008 financial crisis, thanks to previously unheard of interventions by federal officials, but full economic recovery is likely to be years away, Nobel Laureate economist Paul Krugman told a large audience at McCosh Hall on the Princeton University campus.

   ”Apocalypse apparently not now,” was how Mr. Krugman, an economics professor at Princeton and New York Times columnist, described the crisis Wednesday afternoon.

   Mr. Krugman won the Nobel Prize for economics last year for his work on international trade.

   ”So what is the crisis that we have experienced? The best way to look at it is we replayed the first year of the Great Depression,” Mr. Krugman said. “The good news is we do not appear to be replaying the second year of the Great Depression.”

   Even so, the cost of the crisis in human terms — people who have lost jobs, homes or suffered economic hardship — has been huge, and recovery of jobs alone will take years, he said.

   ”Unless there is something out there on the horizon that is not evident now, this crisis in a sense is going to drag on for years. We are going to be in a depression-era economy for years,” Mr. Krugman said.

   Further, in not imposing new restrictions and oversight on investment banks and other financial institutions when they have an opportunity to, federal officials may open the door for another meltdown, Mr. Krugman said.

   ”This crisis may go to waste, and we may end up well-positioned to have an even bigger one 10 years down the road,” he said.

   The 2008 crisis was global and was set off by the bursting of a huge bubble in housing prices.

   ”When it did, it brought down a large part of the financial system with it,” Mr. Krugman said.

   What emerged was a huge, almost completely unregulated and out-of-control shadow banking system, which was interlinked and froze in the crisis, he said.

   ”A few people saw that. I was not one of them. I did not understand how far gone we were,” Mr. Krugman said. “By 2007, the shadow banking system was bigger than the conventional banking system and almost completely unregulated.”

   He said faith in both the public and private sectors that the private market would self-regulate and always operate were shown to be untrue in the crisis, when huge banking sectors — such as overnight “repo” loans and auction rate securities — simply dried up.

   ”A $350 billion piece of the banking system just disappeared,” he said of the auction rate market.

   The interconnectedness of the financial system emerged when regulators allowed investment bank Lehman Brothers to fail, and the whole financial system nearly went with it, Mr. Krugman said.

   Thereafter, huge injections of money into the system were made, initiated by the Federal Reserve Bank, with many institutions receiving large government investments, Mr. Krugman said.

   Mr. Krugman gave credit to Ben Bernanke, chairman of the Federal Reserve and a former economics professor at Princeton, for understanding a meltdown on a scale with the Great Depression could happen today and acting rapidly and in unorthodox fashion to curtail the crisis. He said Mr. Bernanke’s urgency and the “extremely unconventional policies” he initiated had their roots in the Fed chairman’s academic papers on how the Asian financial crisis in the 1990s, particularly in Japan, could have been ameliorated.

   Although the U.S. budget deficit for the fiscal year ended Sept. 30 has hit a record $1.4 trillion, Mr. Krugman said this spending was what avoided a repetition of the Great Depression.

   ”Deficits saved the world. It doesn’t mean they are all good. They are sustainable, but they saved the world,” he said.

   Full recovery will take much longer, according to Mr. Krugman.

   ”When you have a depression that is triggered by a financial crisis, it tends to be a long time before you get full recovery, often five years or more,” he said.

   He cited Japan’s “lost decade” where that country could not lift itself out of depression for more than 10 years following its own financial crisis in the 1990s.

   ”China is a major stumbling point to getting a recovery,” Mr. Krugman said, because it is determined to run a large trade surplus to the detriment of the world’s other economies.

   Mr. Krugman said job losses might end in a few months, but reducing unemployment through job growth could take years.

   ”I am very much worried about a Japanese-style lost decade” in America, he said.

lotis@centraljersey.com