Friday, April 02, 2010

Financial Times Interview with Larry Summers

by Calculated Risk on 4/02/2010 07:48:00 PM

Martin Wolf and Chris Giles at the Financial Times interviewed Larry Summers yesterday. Here is the transcript.

Summers was asked about China, the U.S. economy, the deficit, taxes, financial regulation and more. A brief excerpt (with permission):

Chris Giles: Do you see the economy, the growth being self sustaining now? Or are we on a process whereby the time the fiscal money runs out, are you confident that we’re then in a self sustaining growth?

Larry Summers: I think the economy appears to be moving towards escape, quite clearly moving towards escape velocity. You hear a lot less talk of W-shaped recoveries and double-dips than you did six months ago. And there are obviously uncertainties, there obviously can be new shocks, but I think one has to see the performance of the economy against the backdrop of a major economic downturn associated not with the sharp tightening of monetary policy but with the collapse in asset prices.

And if you use as a standard for judging the US economy the aftermath of financial crises of the kind summarised in the Rogoff and Reinhart book, what I think you have to be impressed by is that the timetable to major action was much shorter than is historically normal and that the process of recovery seems to be more sustained. It seems to have started earlier and more vigorously than was common in that category of problems.
I think the concern for a double dip (something I think the economy will avoid) are mostly for the 2nd half of 2010 as the fiscal stimulus subsides.

On China, Summers reiterated the G20 commitment for a more balanced global economy and he argued that exchange rates play a crucial role. I expect China to allow their currency to appreciate this year (I've seen estimates in the 5% to 10% range).