Former Treasury Secretary Lawrence Summers said American economic policy must remain focused on addressing inadequate demand, and predicted the U.S. would avoid defaulting on its debt, as the federal government approaches its debt ceiling.
“Years after financial repair, we have made very little progress in restoring the level of GDP to its potential,” Summers said at a conference in Seoul today, according to a transcript provided by the organizers, the World Knowledge Forum. “The fraction of the population that is employed has barely increased since the trough of the recession.”
Summers, who withdrew as a candidate to lead the Federal Reserve before President Barack Obama nominated Fed Vice Chairman Janet Yellen earlier this month, said “the challenge of assuring adequate demand remains a critical one for the United States. In my view it remains essential that fiscal and monetary policy be focused on pushing the economy forward.”
The Harvard University professor, who served at the Treasury during debt-limit battles in the 1990s, predicted the U.S. would again veer away from the brink of defaulting on its obligations. “We will not default. I cannot say exactly how the political machinations will work out, but I am as certain as anything that any dollar of interest will be paid, and paid on time.”
Summers, who was Obama’s first White House National Economic Council director, spoke after Senate Democratic and Republican leaders said they made significant progress toward an accord that would end a partial government shutdown and prevent the nation from breaching the U.S. debt ceiling on Oct. 17.
The prospect of the Fed scaling back its asset purchases is an issue that needs “frank” discussion among the Group of 20 emerging and developed economies, Summers also said. Fed policy makers have so far held off on any tapering of its stimulus, with the central bank last month highlighting an unemployment rate that remains “elevated.”
The U.S. Commerce Department is scheduled to release its report on third quarter gross domestic product on Oct. 30, when it may say growth slowed to an annualized rate of 2 percent, from 2.5 percent in April-to-June, according to the median estimate of economists surveyed by Bloomberg News.