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Former US Treasury Secretary Larry Summers warns economy is in grave danger
Washington: Former US Treasury Secretary Larry Summers said he’s never seen a more uncertain recovery, especially if Congress doesn’t act “strongly and quickly” to continue economic stimulus to offset the coronavirus pandemic.
More important than the size of the next relief package is how long the emergency measures last, given the vast number of Americans now unemployed, the former Obama and Clinton administration official said in an interview on “Bloomberg Wall Street Week.”
To Summers’s point, Trump administration officials, including Treasury Secretary Steven Mnuchin and White House Chief of Staff Mark Meadows, were on Capitol Hill Saturday for talks on the next stimulus bill.
“We had a productive meeting on the staff level working through the final documents, just finishing everything,” Mnuchin told reporters.
Summers, spoke after U.S. jobless claims rose last week for the first time since March, the clearest sign yet of a pause in the economic recovery. Coronavirus cases have surged in much of the country, forcing some businesses to close their doors again.
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“I personally doubt what I think is the market’s view, which is that we’re going to have most people vaccinated and life returning to normal, sometime by spring of next year,” Summers said.
A growing body of evidence indicates America’s rebound is stalling, days before hundreds of billions of dollars’ worth of federal aid is set to expire. It could be weeks before the next round of stimulus is completed given wrangling between the White House and Congress; talks are expected to continue this weekend.
Millions of Americans have been kept afloat financially by supplemental unemployment checks that cut off this month, barring Congressional action.
Duration Vs. Size
“Everybody makes a mistake – they focus on the size of the package, and they don’t focus on the duration of the package, so they don’t focus on the rate of flow of stimulus,” Summers said. “We need to maintain a very substantial fiscal impulse in the economy for quite some number of months.”
Looking ahead to the potential arrival of a Covid-19 vaccine, Summers said vaccinating the whole population would be “vastly harder” than making sure there are enough face masks for health-care workers.
Summers, a former Harvard University president who headed the National Economic Council under President Barack Obama, warned that the U.S. risks the biggest falloff in stimulus in the country’s history as Congress drags its heels.
His comments echoed those of former New York Fed President William Dudley, who said on Thursday that the U.S. economy will be weaker if the Congress doesn’t replace expiring unemployment insurance assistance.
“We’re basically right at the edge of a huge fiscal cliff with the expiration of the $600 a week unemployment compensation benefits,” Dudley said on Bloomberg Television.
The White House’s Meadows said Saturday it was up to Congressional leaders to decide how to handle any short-term unemployment extension.