Paul Krugman Thinks US Recession Will Be Over By September

For Krugman to be so bold in making that statement, its becoming a media circus. How are you going to take popularity votes from Roubini unless you make these aggressive calls that make everyone sit up and take notice. Even if your call does not work out, you are an outstanding economist, you role in life is to justify and explain why your predictions did not turn out the way you predicted. Great way to stay in the media focus and still be just doing your job, without achieving anything really in the end... mommas, don't let your sons grow up to be economists!!

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The US economy probably will emerge from the recession by September, Nobel Prize-winning economist Paul Krugman said.

"I would not be surprised if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer," he said in a lecture today at the London School of Economics. "Things seem to be getting worse more slowly. There’s some reason to think that we’re stabilising."

US stocks erased an earlier decline after Krugman made his comments. The Standard & Poor’s 500 Stock Index was little changed at 939.14 in New York after slumping as much as 1.5 per cent earlier, and the Dow Jones Industrial Average gained 1.36 points to 8764.49.

Krugman, a Princeton University economist, has warned recently that the US government hasn’t done enough to help the country’s economy recover. Last month, at a conference in Abu Dhabi, he said the fiscal stimulus is "only enough to mitigate the slump, not induce recovery".

The National Bureau of Economic Research, based in Cambridge, Massachusetts, is the official arbiter of US recessions and expansions. Last week, Robert Hall, the head of the NBER’s business-cycle-dating committee, said it’s "way too early" to say the contraction is over.

The US has been in a recession since December 2007, and the NBER may take months to decide when a trough has been reached. Recent reports have shown an easing of declines in industrial production and other measures that the group reviews when determining whether the economy is in a recession.

Even with a recovery, "almost surely unemployment will keep rising for a long time and there’s a lot of reason to think that the world economy is going to stay depressed for an extended period," Krugman said.

The unemployment rate jumped to 9.4 per cent in May, the highest since 1983, partly reflecting more people joining the labor force to look for work.

The US Federal Reserve’s efforts to stabilise markets - measures that have swelled the central bank’s balance sheet - have helped, Krugman said. "A lot of the spreads in the markets have come down” and “the acute financial stuff seems to have come to a halt," he said.

Fed officials lowered the benchmark interest rate to a target range of zero to 0.25 per cent in December and have switched to using credit programs and outright purchases of Treasuries, mortgage-backed securities and housing agency debt as the main tools of monetary policy.

$US2.31 Trillion

The balance sheet’s size peaked at $US2.31 trillion in December. It has fluctuated around $US2.1 trillion over the past two months.

The Fed’s swollen balance sheet is "a little alarming. In the long run you really don’t want the central banks to be so involved in the business of lending," Krugman said. "But it’s arguably necessary" even if there are questions about "where does it stop?"

p/s photos: Kim Ahep