Bloomberg /SMH: The winner of the 2008 Nobel Prize for economics said the US is plunging into a ``nasty recession'' with a ``lot of suffering'' to come, even if policy makers succeed in unfreezing the credit markets. ``That's baked in,'' Princeton University professor and New York Times columnist Paul Krugman said in an interview on ``Night Talk'' with Mike Schneider to be broadcast later today on Bloomberg Television. ``There is a lot of downward momentum.'' He said a rise in the unemployment rate to 7% ``seems almost certain'' and he put the odds of an increase to 8% at ``better than even.'' The jobless rate in September stood at a five-year high of 6.1%.
Signs that the economy is falling into a recession multiplied this week with news that retail sales have fallen for three straight months, single-family housing starts hit a 26- year low and consumer confidence plunged the most on record. Krugman voiced some doubts that the steps that Treasury Secretary Henry Paulson is taking to combat the credit crisis will succeed and suggested that more might be needed. Paulson rolled out plans this week to use $US250 billion of taxpayer funds to purchase stakes in thousands of financial firms to try to halt a credit freeze that threatens to bankrupt companies and hammer the job market. ``It's not clear there's enough money,'' Krugman said.
He added that Paulson may also have to insist that the banks use the money they're receiving to make new loans if the plan is to work. ``They may need to be much more interventionist than they have been thus far,'' the Princeton professor said.
p/s photos: Pevita Pearce