Larry Summers, who called out inflation fears with Biden’s $1.9 trillion COVID-19 relief package, says the US is seeing ‘least responsible’ macroeconomic policy in 40 years

Larry Summers
Former US Treasury secretary Larry Summers.

  • Larry Summers said that the US is seeing the “least responsible” macroeconomic policy in decades.
  • The former Treasury secretary been critical of Biden’s $1.9 trillion COVID-19 relief package.
  • Summers said there’s “a one-third chance” of significant inflation over the next few years.
  • See more stories on Insider’s business page.

Former US Treasury Secretary Larry Summers said that the country is seeing the “least responsible” macroeconomic policy of the past 40 years, resting the blame on lawmakers on both sides of the aisle.

Summers offered the negative economic forecast during an appearance on Bloomberg Television’s “Wall Street Week” on Friday. Summers has vocally criticized President Joe Biden’s recently signed $1.9 trillion COVID-19 relief package, saying it could overheat the economy.

“The [Federal Reserve] has stuck to its guns on no rate hikes for years and years and continuing to grow its balance sheet,” he told Bloomberg. “What is kindling is now igniting. I’m much more worried that we’ll have either inflation or a pretty dramatic fiscal-monetary collision.”

He added: “I think this is the least responsible macroeconomic policy we’ve had in the last 40 years. I think fundamentally, it’s driven by intransigence on the Democratic left and intransigence and completely unreasonable behavior on the whole of the Republican party.”

Summers, who served in Bill Clinton’s Cabinet and directed the National Economic Council in 2009 and 2010 under former President Barack Obama, argued that the country is “running enormous risks.” He said he believes there’s “a one-third chance that inflation will significantly accelerate over the next several years.”

He offered additional scenarios pertaining to the country’s economic outlook.

“There’s a one-third chance that we won’t see inflation, but that the reason we won’t see it is that the Fed hits the brakes hard, markets get very unstable, and the economy skids closer down to a recession,” he said. “I think there’s about a one third chance that the Fed and the Treasury will get what they’re hoping for and we’ll get rapid growth that will moderate in a non-inflationary way.”

He added: “There’s the real risk that macroeconomic policy will be destabilizing.”

Read more: Meet the presidential confidants, Delaware’s closely-knit and well-positioned congressional delegation, Joe Biden’s entrusted with cementing his legacy

For months, Summers has been sounding the alarm of inflation fears, writing an op-ed in The Washington Post in January where he wrote that Biden’s relief package could cause “inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability.”

While Summers praised the COVID-19 package’s “ambition” and its “rejection of austerity orthodoxy,” he stated that garnering legislative support for tax increases or spending reductions could prove to be difficult and might pose a “risk of inflation expectations rising sharply.”

Treasury Secretary Janet Yellen had a different perspective, encouraging robust stimulus measures.

“It’s a big package, but I think that we need to go big now, and that we can afford to go big,” Yellen told PBS NewsHour anchor Judy Woodruff in an interview shortly before the legislation was approved by the Senate.

Yellen has also repeatedly dismissed concerns of inflation. “I’ve spent many years studying inflation and worrying about inflation. And I can tell you we have the tools to deal with that risk if it materializes,” she told CNN in January.

The Biden administration has been vigilant about not repeating the legislative and political mistakes of the $787 billion American Recovery and Reinvestment Act of 2009, which was signed into law by former President Barack Obama in response to economic impacts of the Great Recession.

The stimulus measure, which was championed by Obama and congressional Democrats, became a political liability for the party in the 2010 midterm elections, which saw the GOP retake the House and make sweeping gains across the country.

White House Council of Economic Advisors chair Cecilia Rouse said on MSNBC’s “The Sunday Show with Jonathan Capehart” last week that not doing enough to help the economy would pose a bigger threat, especially as the country is working to end the COVID-19 pandemic.

“When one makes an economic investment, there are risks,” she said. “There is a risk that this [relief package] will overheat the economy and cause inflation. However, it’s really in our estimation that the risk of doing too little is actually greater the risk of doing too much.”

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Dow, S&P 500 close at record highs as stimulus-fueled optimism continues

Trader NYSE
Traders work on the floor at the opening bell of the Dow Industrial Average at the New York Stock Exchange on March 18, 2020 in New York.

  • US stocks gained at the close with the Dow reaching a record closing high as investors cheered the passage of the stimulus bill.
  • One strategist says retail investors could buy a record $3 billion of US stocks when they receive stimulus checks.
  • Airline stocks gained after the TSA revealed air travel spiked to its highest level in nearly a year.
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US stocks gained at the close with the Dow reaching a record closing high as investors remained optimistic on economic growth following President Biden signing the $1.9 trillion stimulus program into law last week.

Retail investors could buy a record $3 billion of US equities in a single day when they receive their $1,400 stimulus checks from the US government, according to Viraj Patel, global macro strategist at Vanda Research. That could happen as soon as Wednesday or Thursday, when most Americans will start seeing $1,400 deposited into their bank accounts.

Here’s where US indexes stood after the 4:00 p.m. close on Monday:

Shares of major airline companies including American Airlines, United, Delta, and Southwest rose on Monday on optimism of a travel rebound in sight after the Transportation Security Administration revealed that air travel spiked to its highest level in nearly a year.

AMC shares rocketed up 29% extending this year’s stunning run higher as the movie chain will begin reopening theaters in California.

Penn National Gaming jumped to an all time-high of $142 a share on Monday as investors cheered its inclusion in the S&P 500 next week. The Barstool Sports stakeholder has gained almost 3,000% over the last year.

Short-sellers have tripled bearish bets against SPACs to $2.7 billion, from $724 million at the start of the 2021, according to data from S3 Partners amid fears the blank-chec frenzy has gone too far.

Bitcoin pulled back to around $56,500 on Monday after it rose above $61,000 over the weekend. A report said India could fine anyone in the country for even holding such digital assets.

Oil prices fell. West Texas Intermediate crude fell 0.38%, to $65.36 per barrel. Brent crude, oil’s international benchmark, declined by 0.5%, to $68.88 per barrel.

Gold jumped 0.6%, to $1,730.30 per ounce.

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Nearly three dozen GOP mayors back Biden’s COVID-19 relief package

David Holt
Oklahoma City Mayor David Holt.

  • Roughly 32 GOP mayors are backing Biden’s $1.9 trillion COVID-19 relief bill.
  • The support is a stark contrast to the bill’s opposition among congressional Republicans.
  • The House passed the bill on Saturday and it now heads to the Senate where resistance is anticipated.
  • Visit the Business section of Insider for more stories.

While President Joe Biden faces firm opposition to his $1.9 trillion COVID-19 relief package from congressional Republicans, many elected GOP officials outside of Washington DC are singing a different tune.

Roughly 32 GOP mayors, representing cities from Oklahoma City and Arlington, Texas to Carmel, Indiana and Mesa, Arizona, are among 425 mayors who backed the relief bill in a letter through the US Conference of Mayors to Congress.

“American cities and our essential workers have been serving at the front lines of the ongoing COVID-19 pandemic for nearly a year,” the mayors wrote. “Despite immense fiscal pressure, your local government partners oversaw those efforts, while trying to maintain essential services and increase our internal capacity to provide support for residents and businesses who have been crippled by a tanking economy.”

Congressional Republicans have blasted the price tag of Biden’s bill, deriding the local economic relief as a “blue state bailout” for Democratic cities and states.

GOP Rep. Trent Kelly of Mississippi echoed such a sentiment at a House committee meeting this week.

“What I see is a bailout for poorly-run (cities and states), not money that is earmarked for those who have discovered losses based on COVID,” he said.

Some Republicans have also argued that the economic forecasts for many localities were above expected projections, eliminating the need for increased federal funds.

During a CNN segment yesterday, GOP mayors David Holt of Oklahoma City and John Giles of Mesa defended the need for additional aid.

“I don’t know a city where revenues have gone up,” Holt said. “That is news to me and I think that is not true. Whether your mayor is a Republican or a Democrat, revenues are down.”

He added: “The idea that this is a red state/blue state or red city/blue city thing is really a myth. Everybody is down. Everybody needs some support to get their services back to the level that people expect.”

When asked if Mesa was a “poorly-run city,” Giles rejected such a characterization.

“I’m very proud of the way that we’ve administered the COVID relief that we received a year ago,” he said. “There are a lot of people in Mesa that received food and utility assistance. Our first responders were funded. We were able to get kids back into school, to help with our school districts to have the remote learning devices they needed.”

He emphasized: “I would invite any scrutiny that partisans would like to apply to the way that we’ve administered the funds that we’ve received thus far.”

After the relief bill passed the House in a near party-line 219-212 vote yesterday, the group praised the outcome as it heads to the Senate.

“The fiscal relief passed today will help close deep budget holes and enable cities to be an engine of our recovery,” they wrote. “But the job is not done. Mayors urge the Senate to now act quickly on this package and preserve the desperately needed resources for cities of all sizes.”

Earlier this month, a group of GOP senators led by Sen. Susan Collins of Maine sought to reduce the size of the relief package to roughly $600 billion, but Democrats proceeded with their bill through the reconciliation process, which would allow them to pass the bill through party-line votes.

If all 50 Democrats back the relief bill on the Senate floor in the face of united GOP opposition, then Vice President Kamala Harris’s tie-breaking vote will assure its passage.

Holt, for his part, said that he was singularly focused on the well-being of his city.

“I’m a one-issue voter,” he told USA Today. “If it’s good for cities, and especially for Oklahoma City, I’m going to be supportive. The $350 billion for cities and states is a no-brainer to me, regardless of your political party.”

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