Former Treasury secretary sees recession

When government fails to provide any oversight and ignores impending problems which then lead to costly economic and societal problems, how does that help “small government?” Does it help solve a problem or does it only help to destroy all mechanisms for oversight in the future? In this specific case, how did ignoring the greed on Wall Street help us? If the government has to face recession, home losses, billions of write-downs and job losses (which cut into taxes received), how does this benefit the nation and what will the costs be?

Whatever I may think about Summers on other issues, he’s right about this.

Summers, who served in the Democratic administration of former president Bill Clinton, said the U.S. authorities needed to act urgently in avert long-lasting economic damage from the global credit crunch.

“Without stronger policy responses than have been observed to date … there is the risk that the adverse impacts will be felt for the rest of the decade and beyond,” Summers wrote in a column in the Financial Times on Monday.

Summers said the U.S. Federal Reserve should recognize that “levels of the fed funds rate that were neutral when the financial system was working normally are quite contractionary today.”

The Fed has already cut the policy rate to 4.5 percent from 5.25 percent since the global crisis was triggered in August by defaults on U.S. mortgages, and financial markets expect further easing.

Summers said fiscal policy needed to be “on stand-by” to provide immediate temporary stimulus through spending or tax benefits for low and middle income families if the situation worsens.

The authorities also had to respond urgently to the contraction in credit, said Summers. “The time for worrying about imprudent lending is past. The priority has to be maintaining the flow of credit.”

An American in Paris, France. BA in History & Political Science from Ohio State. Provided consulting services to US software startups, launching new business overseas that have both IPO’d and sold to well-known global software companies. Currently launching a new cloud-based startup. Full bio here.

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