Nobel laureate economist Paul Krugman has good news and bad news for U.S. investors.
The good news: the economy has almost bottomed.
The bad news: that means the dollar is vulnerable.
“Just about all of the economic indicators out there are suggesting that the free-fall has come to an end, that we’ve stabilized,” Krugman said at a seminar in Vietnam, reported Bloomberg News.
“Probably the worst in terms of shocks to the system is over.”
The Federal Reserve’s interest rate cuts, its securities purchases and the Obama administration’s stimulus package have eased the crisis, he says. The U.S. economy may even grow “slightly” in the second half of the year.
To be sure, recovery isn’t yet assured, Krugman says.
“I don’t think we’ve hit bottom, but the bottom is not too much further below us,” he explains.
“My big concern is that we don’t hit the bottom and bounce, we hit the bottom and stay there. It’s not obvious where recovery comes from.”
And when it does come, the dollar will suffer, he says.
“The U.S. dollar is going to fall quite a lot,” Krugman predicts
“The demand for dollars has been temporarily inflated by the crisis. Good news is actually bad news for the dollar. If things stabilize, then the safe-haven demand for dollars falls off.”
Thomas Harr, currency strategist at Standard Chartered, agrees. “We think it’s clearly the beginning of a trend downward for the dollar,” he tells CNBC.
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