50% chance of depression in US

Bloomberg
Tuesday, Dec 23, 2008

San Francisco: The US economy has a 50 per cent chance of falling into a depression during the next three years, said Roger Farmer, a member of the National Bureau of Economic Research’s economic fluctuations and growth programme.

“There’s a significant probability things will get worse,” Farmer, 53, said during a phone interview Friday. “We’re certainly not at the end of the recession and things are getting worse.”

A drop in the Conference Board’s index of leading indicators, released Thursday, underscores econo-mists’ expectations that the recession will be the longest in the postwar era as banks restrict credit, home and stock values plunge, and job losses mount. Farmer said he is predicting the US recession will last at least another year.

“Everything depends on business confidence, and what I see is declining confidence,” said Farmer, who is also graduate vice-chair of the Economics Department of the University of California at Los Angeles.

The loss of confidence is leading households and companies to undervalue assets, which is hurting consumer spending and investment, he said. A government fiscal stimulus programme will have a “questionable” immediate effect on consumption and financial markets, Farmer said.

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