Tags: Summers | Recovery | us | economic

Summers: Strong Recovery a 'Substantial Possibility'

Monday, 26 March 2012 12:50 PM

Former Treasury Secretary Lawrence Summers says that after the false starts of 2010 and 2011, the U.S. economy may finally be on the path toward a strong recovery.

In the springs of 2010 and 2011, many observers who thought they detected evidence that the economy had decisively turned around were disappointed a few months later, Summers wrote in an opinion piece in the Financial Times.

"Several considerations suggest that this time may be different," he said.

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Among them, he listed employment growth that has been running "well ahead" of population growth for some time, a higher U.S. stock market, and the fact that expected market volatility is "lower than at any time since 2007."

He also cited pent-up demand from consumers who have long put off purchases of new cars and other durable goods, and signs that the housing market is beginning to stabilize.

Summers also says it's possible to have stimulus today and austerity tomorrow.

"The right approach is to use contingent commitments – policies that commit to action to normalize conditions, but only when certain thresholds are crossed," writes Summers, now a Charles W. Eliot University Professor at Harvard.

"So, for example, it might be appropriate for the Federal Reserve to commit to maintain the current fed funds rate until some threshold with respect to unemployment or expected inflation is crossed."

But Mohamed El-Erian, CEO and co-chief investment officer of bond giant Pimco, warns that the latest round of green shoots in the economy could wither in the months ahead as U.S. politicians come to terms with huge spending and tax choices they have until now put off.

“For starters, the economy is not yet in a position to handle the 4 percent to 5 percent of GDP ‘fiscal cliff’ that is approaching as all of the hard political decisions that were postponed come into view at the end of this year,” El-Erian writes for Project Syndicate.

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

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Monday, 26 March 2012 12:50 PM
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