Expert: Markets 'irrationally exuberant'

Nobel Prize-winning economist Joseph Stiglitz says unemployment is going to keep rising and should be the main focus for policymakers, and that gains in the stockmarket indicate investors have been "irrationally exuberant" about a recovery.

"There's a lot of risk going ahead of some big bumps," he said yesterday 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 United States 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 Labour Department report last week showed.

Joblessness is likely to reach 10 per cent by the end of the year, according to economists surveyed by Bloomberg News last month.

It was "pretty clear that the situation will continue to get worse", Stiglitz said, citing elements of the jobs report such as the number of people unable to find a fulltime job and the pace at which Americans are dropping out of the labour force.

Economic growth this year and next would "fall well short of what we need to stop unemployment from growing", he said.

The likelihood that the US economy would be "out of the woods" before most of the measures in the Obama Administration's stimulus package expired in 2011 was "very small", he said.

Employers cut 263,000 workers from payrolls in September, while the jobless rate rose to 9.8 per cent from 9.7 per cent the month before, the Labour Department said on Saturday.

In a separate Bloomberg Television interview, Goldman Sachs Group chief economist Jim O'Neill said the International Monetary Fund meetings in Istanbul were "stuck" in an outdated mentality that did not reflect the rising power of emerging economies since the global financial crisis.

O'Neill also said the dollar probably was not the top concern for US policymakers, and predicted 4.1 per cent growth for the global economy next year.

- BLOOMBERG