Larry Summers Says Rest Of The World Will 'Suffer Greatly' If US Doesn't Control Inflation And Rates Keep Rising

Former Treasury Secretary Lawrence H. Summers believes the rest of the world will suffer greatly if the United States does not control inflation and rates ultimately rise far above current levels, much like how things unfurled in the early 1980s.

Citing his column in the Washington Post, Summers tweeted that even recent increases in rates and the dollar along with geopolitical dislocations are creating serious problems for many developing countries. “The U.S. should be leading global efforts to resolve sovereign debt problems more quickly and to catalyze higher lending levels from the International Monetary Fund and the World Bank,” he said in his tweet.

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The former Treasury Secretary has been asserting that achieving a soft landing may be much harder than anticipated. Even the markets seem to consider this fact given that the much anticipated "Santa Claus" rally has still not surfaced. U.S. markets closed flat on Tuesday, snapping a four-day losing streak. The SPDR S&P 500 ETF Trust SPY closed 0.14% higher while the Vanguard Total Bond Market Index Fund ETF BND shed 0.66%.

“Managing inflation & risk of recession in a way that ensures a soft landing is likely not possible. But managing these risks with max. care is profoundly important as a foundation for long-term investment policies that will drive the inclusive prosperity most Americans desire,” Summers tweeted.

On Hawks: Summers said hawks who suggest the Federal Reserve must keep raising rates until they substantially exceed past inflation neglect the fact that inflation is coming down — much less the possibility that the economy could face a "Wile E. Coyote moment" in 2023, in which demand collapses.

“This could occur as small and medium businesses hit a wall of high-interest refinancing, as markets suddenly focus on what a recession would do to corporate profits, as consumers’ COVID-era savings are depleted or as businesses that have been clinging to their workforces realize they’re no longer necessary,” he tweeted.

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Photo: World Economic Forum via Wikimedia Commons