Tags: larry summers | recession | 2 years. economy

Larry Summers: Recession to Hit US Within 2 Years

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By    |   Wednesday, 09 January 2019 05:02 PM

Economist Larry Summers repeatedly warned in numerous mainstream media appearances this week that America headed toward a recession in the next two years.

"People are now saying there's a 40-or-50% chance of a recession within the next two years," the former Treasury secretary told CNN.

The Harvard University economics professor also told CNBC that President Donald Trump’s trade-tariff battle against China is just one of the adminsitration’s financial and economic gambles that may not pay off at they hoped.

"The president vastly overstates the comfort of our own economic position," he said. "Our position isn't so strong."

Summers, who led the Treasury Department under President Bill Clinton and served as one of President Barack Obama's top economic advisers, acknowledged that the United States isn't in a downturn yet, CNN explained.  

He said other economic indicators, including consumer sentiment and commodity prices, are more troubling.

"Whenever you start to see slowing, the prospect or possibility of recession is something that you have to reckon with," Summers said.

Earlier this week, Summers detailed his fears of recession in an article for the Financial Times.

But he’s not holding out much hope.

“Perhaps the U.S. economy will enjoy a soft landing: jobs growth would slow towards long run sustainable levels, and productivity growth would accelerate enough to allow continued gross domestic product growth of 2 percent and increased wage growth without accelerating inflation,” he wrote for the FT. “But this would require both policy skill and great luck. Given that we are starting from very high debt levels and low unemployment, a recession is the more likely outcome,” he warned.

Don’t look for help abroad, he advised.

“It is almost inconceivable that the global economy will remain healthy in the face of serious economic problems in both China and the US, even leaving aside their conflicts over trade and technology. Europe lacks economic energy and the uncertainties associated with Brexit, French protests, German political transition and Italian populism mean the continent is more likely to be a source of problems than a solution.”

Meanwhile, Goldman Sachs Group Inc. said investors should increase their holdings of cash even with fears of a recession in the U.S. this year likely to prove overblown.

With a risk-free rate of 2.4 percent on three-month T-bills, “cash represents a competitive asset,” with allocations likely near the lowest levels in 30 years for many investors, analysts including chief strategist David Kostin wrote in a research note, Bloomberg reported.

The bank recommended investors reduce holdings in bonds this year and remain invested in equities. Though U.S. stocks could come under further pressure, the Goldman strategists said they expect “positive U.S. economic growth will support continued earnings growth.”

“The potential exists for further equity market downside in the near term even if the recent equity market collapse does not lead to a recession,” the strategists wrote. “There have been four bear markets without a recession since 1946. During these episodes, the S&P 500 declined by an average of 21 percent for a period of 8 months. If the current episode follows that historical pattern, the S&P 500 could fall further in the next couple of months.”

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Economist Larry Summers repeatedly warned in numerous mainstream media appearances this week that America headed toward a recession in the next two years.
larry summers, recession, 2 years. economy
Wednesday, 09 January 2019 05:02 PM
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