US economy: ‘worst is yet to come’

All eyes are on the US economy as stocks continue to plummet and the nation heads into what will likely become an official recession. Former chief economist at the International Monetary Fund and current professor of economics at Harvard University Kenneth Rogoff says some of the big banks may fall.

“The worst is yet to come in the US,” Rogoff told Bloomberg Press. “The financial sector needs to shrink; I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.”
 
Rogoff also recommended that Fannie Mae and Freddie Mac, the two beleaguered mortgage giants, be nationalised. “The equity holders should lose all their money. Probably we need to guarantee the bonds, simply because the US has led everyone into believing they would guarantee the bonds.”
 
Shares in the firms, owning about US$6 trillion of US mortgages, declined to the lowest level in more than 17 years.
 
The Australian dollar opened above US87 cents due to a rise in oil prices and a weakened US dollar, which dipped against most currencies overnight.