Nobel Winner Krugman Sees U.S. Recession Ending Soon

2009-06-08
By Courtney Schlisserman
June 8 (Bloomberg) -- The U.S. 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 stabilizing."
U.S. stocks erased an earlier decline after Krugman made
his comments. The Standard & Poor's 500 Stock Index was little
changed at 939.14 at 4:07 p.m. in New York after slumping as
much as 1.5 percent earlier, and the Dow Jones Industrial
Average gained 1.36 points to 8,764.49.
Krugman, a Princeton University economist, has warned
recently that the U.S. 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 U.S.
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 U.S. 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.

Unemployment to Rise

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 percent in May, the
highest since 1983, partly reflecting more people joining the
labor force to look for work.
The U.S. Federal Reserve's efforts to stabilize 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 percent 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.

$2.31 Trillion

The balance sheet's size peaked at $2.31 trillion in
December. It has fluctuated around $2.1 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?"