A visionary Larry Summers predicts the future (and it doesn’t look very good)

Inflation is out of control around the world. The latest data published in the US placed the price increase at 6.8%, maximums not seen since 1982. So, who better to summarize 2021 and predict what 2022 will be like than former Secretary of the Treasury Larry Summers, whose warnings about on inflation have proven to be largely accurate? Not surprisingly, at the beginning of summer it was already forecasting a figure of at least 5% for the end of this year.

Summers, a professor at Harvard University and a contributor to Bloomberg, explains in an interview with the agency why he thinks “getting the economy going” is unlikely to help American workers get a bigger slice of the economic pie.

During the conversation, Summers expresses his fear that the US is “reaching a point where it will be challenging to reduce inflation without leading to a recession.” In this sense, I already expressed a few days ago that the US Federal Reserve will probably have difficulties to return the ‘genius’ of inflation to the bottle without causing a recession. The former Treasury secretary compared monetary policy to the attempt to adjust the temperature of the water in a shower in an old hotel, due to the delay in the economic response. That’s why, he said, the Fed has often triggered recessions when it reacts to stamp out inflation.

“I think the difficulty of designing a soft landing in which inflation goes down but we don’t see a real problem is, I think, very challenging,” insisted the one who was economically responsible in Bill Clinton’s second term.

Summers thinks that the analyzes that suggest that much of the rise in prices is due to bottlenecks are not correct; 90% of the CPI components show inflation above 3%he notes, more than 50% above the Fed’s target. “If I look at what is happening in the labor market, it seems to me that we have a substantial shortage of labor that drives up wages, but with a delay because Wages are not constantly readjusted. We have substantial pressures on the housing market that have not actually manifested in official price indices yet. So I think we have a pretty serious inflationary situation that has been growing for quite some time. ” , he argues.

He also doesn’t think the data at this point supports the Fed’s view that the economy could enjoy 3.5% unemployment for several years with significantly declining inflation. In fact, the Fed’s forecasts point to unemployment below its estimates of the normal level, interest rates will never reach their concept of normal level in the coming years, he believes.

And if inflation isn’t enough to heat things up, Summers also predicts that The US could suffer a double blow of recession and “secular stagnation” long-term, an unattractive mix of weak growth and persistently low interest rates.

On the failures in the supply chain, Summers points out that “it is not for anything that China is doing. It is because our demand for goods has increased and we should have managed port capacity better.” “Do we need to pay attention to rare earths and other goods that are highly concentrated in the world for our national security? Yes. Should we institute some broader non-trade dependency program? I suspect there would be very substantial inefficiencies in doing that,” Add.

And continues. “We have to manage the world economy much better than we do. That is why I was such a strong supporter of the initiatives that Yellen (the current Secretary of the Treasury) carried out to harmonize corporate taxes around the world and that capital might work, but it couldn’t be hidden and would be reasonably taxed.