Tags: Summers | global | economy | danger

Larry Summers: Global Economy in Danger Zone

By Dan Weil   |   Wednesday, 17 Oct 2012 07:55 AM

Economies around the world are in trouble, says Harvard economist Lawrence Summers, who previously was a top adviser to President Barack Obama.

“The U.S. still peers over a fiscal cliff, Europe staggers forward trying to prevent crises King Canute-style with no compelling growth strategy and Japan remains stagnant,” Summers writes in the Financial Times.

“The BRIC countries [Brazil, Russia, India and China], meanwhile, are each unhappy stories in their own way.”

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

In developed economies, financial problems are turning into structural ones. If growth in the United States and Europe had been able to continue at its average rate of 1990 to 2007 after those years, gross domestic product would be 10 to 15 percent higher today, Summers says.

He ascribes to what he calls the “demand support view” in order to spark a buoyant economic expansion.

This view “recognizes the need to contain debt accumulation and avoid high inflation, but it pushes for steps to increase demand in the short run as a means of jump starting economic growth and setting off a virtuous circle in which income growth, job creation and financial strengthening are mutually reinforcing.”

Some economists are particularly worried about the newfound weakness in emerging markets.

“There is a concern that in the near term, the engine of growth that provided such a great support seems to be slowing,” Jacob Frenkel, chairman of JPMorgan Chase International, tells Bloomberg.

“They continue to grow, but we’re seeing a slower pace than anticipated all over the world.”

Editor's Note: Prophetic Economist Warns: “It’s Curtains for America.” See Evidence.

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