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Economists: U.S. In Recession For 1 Year Already

RENEE MONTAGNE, host:

To find out more about this we turn to David Wessel. He's economics editor of The Wall Street Journal and joins us now. Good morning.

Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): Good morning.

MONTAGNE: Now, does anything change now that this group of economists says we're officially in a recession?

Mr. WESSEL: Nothing changes in the economy, but it seems to have a very significant effect on people's mood. But nothing is triggered by this. And the economy is still as bad as it was before they made this declaration.

MONTAGNE: And why did they issue the report now?

Mr. WESSEL: Well, these economists are a little bit like historians or archaeologists. They want to wait until it's completely clear that the economy has started to contract. And it really wasn't completely clear until about mid-September that the economy had really sunk into recession. And I suspect that they also wanted to avoid getting caught up in the election, so they waited for that to pass before making the official diagnosis.

MONTAGNE: And sketch us a picture, if you will, of the recession.

Mr. WESSEL: Well, we know one thing already, that the recession began a year ago, and it probably isn't over yet. So that means that it's already longer than the ten and a half month average of recessions since World War II and significantly longer than the eight-month recessions we had in the early '90s and the early 2000s. If you look at the forecast - these guys who make the pronouncement are not forecasting - but if you look at the others who make forecasts, it looks like this recession will be longer than most, perhaps longer than any we've seen since World War II. And there is substantial reason to fear that it's going to be deeper, that is that the contraction will be greater and unemployment rise will be higher than we saw anytime since maybe the early '80s or even beyond.

MONTAGNE: And David, you're telling us this even as a huge government rescue plan is in place. The Federal Reserve has cut interest rates to one percent. Is the government running out of things to do here?

Mr. WESSEL: I don't think so. I guess you have to believe that things would be even worse had the Federal Reserve not been on the case early and the government hadn't done what it's already done. The Federal Reserve has cut interest rates, as you say, to one percent. Fed Chairman Ben Bernanke said yesterday they can keep cutting them, a strong signal they intend to.

And he also talked about the other things that are in the Fed's quiver, as he put it. For instance the Fed, which literally prints money, has already decided it's going to spend $800 billion buying mortgage securities and helping to pay for consumer loans, so they can keep - they're going to use that weapon now, that business of actually printing money and using it to put into the markets, to lend to people, because they're almost out of ammunition on the interest rate cuts.

MONTAGNE: Well, you know, to the average person, and I include myself in that, the idea that the government prints money raises the question, what are the long-term consequences?

Mr. WESSEL: Well, that's a good question. Basically the money for this whole operation is coming from only two sources. One is the Treasury is borrowing a lot of money, issuing a lot of Treasury bills, many of which are being bought by overseas investors or domestic investors who are afraid to put their money anywhere else but the government. So that is one. They're borrowing money and we're going to have to pay it back. And hopefully, when the government sells some of the stuff it's buying, some of these stakes in banks, it will get its money back or get a profit, and so we won't have to worry about raising taxes to pay that debt. But that's not going to be true of all of it.

And the second thing is that's the sort of miracle of central banking, that they have the printing press, and they can print as much money as they need in order to buy securities and to keep the credit flowing in the economy - the substitute, if you will, for what the banks aren't doing. The long-run consequences - if you do too much of it, you get inflation. So what Chairman Bernanke said yesterday is it's going to be very important for the Federal Reserve to undo this once the economy comes back, otherwise we'll have an unwanted burst of inflation.

MONTAGNE: David, thanks very much.

Mr. WESSEL: A pleasure.

MONTAGNE: David Wessel is economics editor of The Wall Street Journal. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.