March 7 (Bloomberg) -- Former Treasury Secretary Lawrence Summers said the U.S. is looking at the gravest set of economic and credit difficulties possibly since World War II and is likely already in a recession.

``We are facing the most serious combination of macroeconomic and financial stresses that the United States has faced in at least a generation,'' Summers said at an annual economic conference today at Stanford University in Stanford, California.

The credit crisis that began with rising delinquencies on subprime mortgages is in its seventh month, and banks are making it harder to get loans after financial companies posted $188 billion in asset writedowns and credit losses since January 2007. The Federal Reserve moved to add as much as $200 billion to the banking system. U.S. payrolls fell in February for the second consecutive month.

``The U.S. economy will be judged to currently be in recession,'' Summers told the audience at the Stanford Institute for Economic Policy Research's annual economic summit. ``We are in unusual territory with respect to recession. We are in nearly unprecedented territory with respect to financial strain.''

In an interview after his speech, he called on the Bush administration to take more steps to address the crisis.

``There is a pressing need for the government to take a more active role in assuring that the flow of credit continues in the municipal and student loan markets,'' he told Bloomberg Television.

Foreclosures

Calling for ``a combination of measures'' to stave off the record number of housing foreclosures, Summers endorsed a proposal floated by Federal Chairman Ben S. Bernanke and Federal Deposit Insurance Corp. head Sheila Bair for lenders to forgive portions of some home loans.

``There are steps that need to be taken to facilitate in a very carefully designed way, the writing down -- not just of the interest payments -- but of the principal associated with certain mortgages so as to avoid foreclosure,'' he said.

A slowing economy can lead to deteriorating asset prices and credit quality, reducing lending and further fueling the cycle of slower growth, Summers said in his speech. ``All three of these mechanisms are now operating strongly in the U.S. economy, I believe, for the first time surely since the 1970s,'' and possibly since World War II, he said.

``We are dealing with a situation of very considerable gravity that we cannot rely on to be self-correcting, and that is likely to become much more difficult to correct if it is allowed to deteriorate substantially further,'' Summers said.

Summers was Treasury secretary during former President Bill Clinton's administration and is the former president of Harvard University in Cambridge, Massachusetts. He teaches at Harvard.

Treasury Secretary Henry Paulson speaks at the conference later today.

To contact the reporter on this story: Vivien Lou Chen in Stanford, California, at vchen1@bloomberg.net

Last Updated: March 7, 2008 14:13 EST