Tags: Larry Summers | Federal Reserve | Easing | Stimulus

Former Treasury Chief Summers Defends Fed's Easing Policy

By    |   Saturday, 15 February 2014 09:11 PM

Former White House economic adviser Lawrence Summers approves of the Federal Reserve's basic approach to fighting the weak economy.

"I think we've had and continue to have a Federal Reserve that recognizes that inadequate demand, inadequate growth and inadequate employment are the greatest threats to America's economic health," he said on CNN's "Fareed Zakaria GPS" program.

"And so they've maintained a policy bias toward expansion. I think that's broadly the appropriate orientation to have. But questions of precise tactics are very hard to judge from the outside."

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Continued sluggishness in the employment market — non-farm payrolls rose only 113,000 in January — doesn't mean the Fed is doing a poor job, says Summers, who was Treasury secretary from 1999-2001.

"I don't think that's the right way to look at it," he said. "Wherever you observe doctors working hardest, you'll observe the most sick people, but that doesn't prove that doctors are counterproductive."

Unprecedented economic weakness has brought "unprecedentedly easy monetary policy," Summers said. "But that doesn't call into question the efficacy of the monetary policy."

The real problem is the tightness of fiscal policy, he says. "I believe we would be doing much better if more of the spur to economic growth was coming from the side of government spending or tax reduction rather than relying on the monetary and liquidity tools to the extent that we have."

Summers doesn't think it's likely that the U.S. economy will grow stronger than expected.
"I probably would have said that two months ago," he said.

"But now, I think after two soft employment reports, after a sense that there's been a big inventory buildup that will get run down and that will come at the expense of GDP, I think that the people who base their judgments on the statistics are actually a little more optimistic right now than the business folk I talk to, who have order books, who are still fairly nervous."

The upside and downside risk to the consensus forecast of about 3 percent are roughly equal, Summers says. The economy grew 3.2 percent in the fourth quarter, but that number is expected to be revised down.

Summers says we should do away with the debt ceiling. "There is no productive purpose to it."

He has college-age children and sometimes disagrees with them over money they spend.

"We discuss whether they're going to pay or whether I'm going to pay," Summers said. "But we don't discuss whether Visa should get stiffed, because we know that would be terrible for our family's credit rating."

Similarly, the government already has spent money, Summers says. "Going through a process of deciding whether we're going to pay the debt we already owe is not worthy of a great nation."

Former FDIC Chairman William Isaac doesn't share Summers' approval of the Fed, objecting strongly both to the central bank's quantitative easing (QE) and its commitment to near-zero short-term interest rates.

"QE has not been helpful to the economy. In fact, it's impeding growth, and it's a terrible tax on senior citizens who are trying to have income for their retirement," Isaac told John Bachman on "America's Forum" on Newsmax TV.

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Former White House economic adviser Lawrence Summers approves of the Federal Reserve's basic approach to fighting the weak economy.
Larry Summers,Federal Reserve,Easing,Stimulus
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2014-11-15
Saturday, 15 February 2014 09:11 PM
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