•Stiglitz Says Markets Are `Irrationally Exuberant' About Economic Recovery

Discussion in 'Wall St. News' started by ByLoSellHi, Oct 5, 2009.

  1. http://www.bloomberg.com/apps/news?pid=20601068&sid=a_ZdUBXgQfTM

    Stiglitz Says Markets ‘Irrationally Exuberant’ (Update1)
    Share | Email | Print | A A A

    By Jeremy Torobin

    Oct. 5 (Bloomberg) --
    Nobel Prize-winning economist Joseph Stiglitz said unemployment is going to keep rising and should be the main focus for policy makers, and that gains in the stock market indicate investors have been “irrationally exuberant” about a recovery.

    “There’s a lot of risk going ahead of some big bumps,” he said today in a Bloomberg Television interview from Istanbul, citing housing, commercial real estate and consumers’ inability to pay off credit cards because of job losses. “There’s a very big risk that markets have been irrationally exuberant.”

    The U.S. has lost 7.2 million jobs since the recession began in December 2007, and the unemployment rate reached a 26- year high in September, a Labor Department report last week showed. Joblessness is likely to reach 10 percent by the end of the year, according to economists surveyed by Bloomberg News last month.

    It’s “pretty clear that the situation will continue to get worse,” Stiglitz said today, citing elements of the jobs report such as the number of people who can’t find a full-time job and the pace at which Americans are dropping out of the labor force.

    ‘Well Short’

    Economic growth this year and next will “fall well short of what we need to stop unemployment from growing,” he said. The likelihood that the U.S. economy will be “out of the woods” before most of the measures in the Obama administration’s stimulus package expire in 2011 is “very small,” he also said.

    Employers cut 263,000 workers from payrolls in September, while the jobless rate rose to 9.8 percent from 9.7 percent the prior month, the Labor Department said Oct. 2.

    In a separate Bloomberg Television interview today, Goldman Sachs Group Inc. Chief Economist Jim O’Neill said the International Monetary Fund meetings in Istanbul are “stuck” in an outdated mentality that doesn’t reflect the rising power of emerging economies following the global financial crisis.

    O’Neill also said the dollar probably isn’t the No. 1 concern for U.S. policy makers, and predicted 4.1 percent growth for the global economy next year.

    Many countries will be “surprising” in their economic growth in 2010, he said, while adding that there is a potential for more “positive surprises” that could help fuel global expansion.

    To contact the reporter on this story: Jeremy Torobin in Washington at jtorobin1@bloomberg.net
    Last Updated: October 5, 2009 14:01 EDT