Lawrence Summers, former director of the National Economic Council and former United States secretary of the treasury, says the US will soon face a recession like never before seen.
The next recession to hit the US, which Summer predicts will happen in the next two years, is going to be longer and more painful than the one in 2008-2009, Summers said in an interview for Bloomberg.
According to Summers, increasing the budget deficit, especially by way of the tax cuts introduced by US President Donald Trump, is one way to make the crisis come sooner. He said that, while the US economy is in its ninth year of constant growth, such stimulating measures are useless.
He also pointed out that Federal Reserve interest rate is at a record low right now, so the typical response of lowering it by 500 basis points will not be available as it usually is when the crisis comes. Without such monetary policy instruments, the US government will have to face a much longer crisis, he said.
“In the next few years, a recession will come and we will, in a sense, have already shot the monetary and fiscal policy cannons, and that suggests the next recession might be more protracted,” he said in an interview Wednesday.
In the United States, a recession is officially declared when GDP shrinks for half a year in a row. The last recession was declared in 2007 and lasted until 2009 — the longest economic contraction since the Great Depression of the 1930s.
The longest period of constant economic growth — 10 years in a row — was recorded in the 1990s. If the promised crisis doesn’t come for two years, the US has a good chance of breaking this historical record before then.