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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Summers: White House Stimulus Action May Have Stabilized Consumer Spending

UPDATED 12:09 p.m., below, with Q-and-A:

Larry Summers, President Obama's top economic adviser, just concluded remarks to the Brookings Institution and said the president's stimulus plan may be working.

"It is surely too early to gauge the broader economic impact of the president’s program," Summers says. "But it is modestly encouraging that since it began to take shape, consumer spending in the U.S., which was collapsing during the holiday season, appears, according to a number of indicators, to have stabilized."

Summers added: "Already, [the stimulus plan's] impact is being felt by cops and teachers who would have been laid off but whose jobs have been saved—it may retain14,000 teachers in New York alone. It will, for most American workers, be felt in the coming weeks as withholding schedules are adjusted, in continuing unemployment insurance benefits and health benefits for hundreds-of-thousands of workers who already would have done without, and in contracting already underway with respect to tens-of-billions of dollars of infrastructure projects across the country."


-- Asked about the massive amount of federal debt being incurred by the stimulus plan and budget, Summers said: "If my speech was intended to persuade you of one thing, it's that [the crisis] is not a set of economic processes that would simply and automatically fix themselves if you didn't act."

He continued: "I track the markets very closely and my reading is that the central variable is whether we are successful in establishing confidence that the economy will recover and growth will be restored and we will have a sustainable expansion. If we put that at risk in the name of some generalized concern about austerity, we would be doing the wrong thing by the economy and ironically, even doing the wrong thing by the markets."

Further, he said: "If deflation sets in, if GDP collapses further, if the consequences of that [impact] even the insured parts of the financial system; if that happens, the magnitude of the federal borrowing -- as large as it is today -- will be dwarfed; it will be far, far larger."

He concluded: "So I believe that the approach that the president is taking is the ultimately fiscally responsible approach because of the risks that it avoids and it contains. Federal debt is being incurred in ways through its macro-economic and structural effects contributes to the process of economic recovery."

-- Summers said that Treasury Secretary Tim Geithner is handling the crisis "in a difficult and courageous way." He added: "The easy thing to to do would be to lay out a nine-point plan [that has] the illusion of specificity and sense of certainty about what the future would bring. We saw that a half-dozen times from the previous administration....The right approach that Secretary Geithner has taken is based on deeds and not words."

In his prepared remarks, Summers inveighed against economic bubbles.

"Bubble driven economic growth is problematic because of disruption and dislocation – affecting those who took part in the bubble’s excesses and those who did not," Summers's remarks read. "And, it is not entirely healthy even while it lasts."

The key to limiting the boom-and-bust cycles of bubbles, Summers is saying, is smart regulation. He proposes:

-- Regulatory agencies should never be placed in competition for the privilege of regulating particular financial institutions.

-- Globally, the United States must lead a leveling-up of regulatory standards, not as has happened all too often in the recent past, trying to win a race to the bottom.

-- No substantially interconnected institution or market on which the system depends should be free from rigorous public scrutiny.

-- Required levels of capital and liquidity must be set with a view toward protecting the system, even in very difficult times.

-- And there must be far more vigorous and serious efforts to discourage improper risk taking through transparency and accountability for errors.

The remainder of Summers's speech is being spent promoting Obama's economic recovery plans.

Summers gave a grim accounting of the past 18 months:

-- On a global basis, $50 trillion dollars in global wealth has been erased. This includes $7 trillion dollars in U.S. stock market wealth which has vanished, and $6 trillion dollars in housing wealth that has been destroyed.

-- Inevitably, this has led to declining demand, with GDP and employment now shrinking at among the most rapid rates since the second World War.

-- 4.4 million jobs have already been lost and the unemployment rate now exceeds 8 percent.

-- Frank Ahrens
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By Frank Ahrens  |  March 13, 2009; 12:08 PM ET
Categories:  The Ticker  | Tags: Larry Summers, Obama, consumer confidence, stimulus plan  
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Next: Bernanke to Appear Sunday on '60 Minutes'


obama first 7 weeks dwarf bush's last 7 weeks. not even close. issues are being addressed, not shelved. action has been taken, rather than "market forces" ruling everything. SOMETHING is finally being done (with the republican congress as bystanders). whether you agree with THE steps taken or not, SOMETHING is being done.
(AMAZINGLY,some complain that too much is being addressed.........slow down college!!)

Posted by: disillisioned | March 13, 2009 11:41 AM | Report abuse

wait for consumption to hit the floor, then say it "stabilized." after the Titanic sank to the bottom of the Atlantic, it also "stabilized."


Posted by: millionea7 | March 13, 2009 11:45 AM | Report abuse

First off, dear WaPo, officials opinion posts are not "breaking news" Space shuttles exploding are breaking news, not economic advisors trying to jawbone the economy, no matter how well intended.

And as for that, he basically said it himself, "it's too early to tell" then goes on anyway to draw conclusions. I could come up with my own hypothesis equally not supported by any facts, eg, after a first wave of fear, consumers have more rationally evaluated the economy and how much they are going to save versus spending and proceeded cautiously with some purchases, that is, there may be a little pent up spending. That's my theory, but I don't know. I don't think Mr Summers know either.

Posted by: jhtlag1 | March 13, 2009 11:47 AM | Report abuse

Of course economic stimulus will work better than the Hooverist policies being pushed by Republicans, which made the last economic crisis of this magnitude into the Great Depression.

It will take time - years, and Republicans will continue to deny any good news and cheer for America to fail.

Posted by: sequoiaqueneaux | March 13, 2009 11:54 AM | Report abuse

We are all hoping it is working and will work. My prayer is that we can all work together to make this nation stronger.

Posted by: tinyjab40 | March 13, 2009 11:58 AM | Report abuse

People who discover a new posting fad and wear it out almost as soon as it began as if repeating an inept trend somehow makes their point irrefutable simply because they stuck the overused fad word or catch-phrase at the end of their post.


Oh, wait . . .

Posted by: grantmh | March 13, 2009 12:14 PM | Report abuse

This stabilization is only temporary. Wait until July when the draconian state budget cuts go into effect..Most state workers are looking at 5-10% pay cuts and layoffs. This affects teachers, universities, state agencies, etc. States are the largest employer in America. The effect of this will have a catastrophic multiplier effect on the economy.

Posted by: Sprintaway1 | March 13, 2009 12:20 PM | Report abuse

Shoeshine having had Big, his old lady, buy two new teleprompters (one for each side of mouth) -

begins to toss up as market continues to tank along with personal popularity curve.

Calls Fidel regarding establishement of re-education camps to deal with problem. Fidel on oxygen etc.

Goes back to teleprompter.

Posted by: webber7 | March 13, 2009 12:23 PM | Report abuse

In another part of the speech, Summers said that the real problem was an excess of fear and that people and companies should be encouraged to invest. Even CNBC said yesterday that the Citi and Morgan Stanley "profits" (pre-reserves) were fake and were part of an orchestrated campaign by the Administration. So is this speech.

One wonders whether the hedge fund with which Summers was associated had covered its shorts and was part of the long side of the short-covering rally we have had this week. When will someone try to find out whether Summers has conflicts of interest in the way that Paulson did in his AIG decision that saved his fortune in Goldman?

What if Rush Limbaugh's rich friends are right when they see a DOW going to 3000-3500 as he reports? Are investors and companies being drawn in to serve private interests? Oh, if we only could have a modicum of transparency.

Posted by: jhough1 | March 13, 2009 12:27 PM | Report abuse

grantmh- your post and $.25 will get you a delicious slice of FAILcake. would you like it with a heaping pile of Keynesian "something-for-nothing" free lunch economic theory? as advertised, it's "free."

Posted by: millionea7 | March 13, 2009 12:45 PM | Report abuse

I'm tickled pink by Obama's success. After 8 long years of "FAIL" we're finally seeing things move ahead.

Posted by: had2 | March 13, 2009 12:52 PM | Report abuse

ummm, we haven't spent the stimulus funds.

so why is summers lying (as is usual for him)?

Posted by: tru-indy | March 13, 2009 1:03 PM | Report abuse

What a self serving statement by Summers. Consumer spending has stabilized because they're too terrified to spend! Working people have seen a huge chunk of their net worth evaporate with the crumbling stock market and the depreciation of their real estate. Also, many are concerned about losing their jobs. Add to that a declining confidence in the governments ability to meet its debt obligations and its no surprise that only the rich or insane would be freely spending in these times.

Posted by: hit4cycle | March 13, 2009 1:03 PM | Report abuse

ummm, we haven't spent the stimulus funds.

so why is summers lying (as is usual for him)?

Posted by: tru-indy | March 13, 2009 1:04 PM | Report abuse

Hope springs eternal but IMHO, Larry Summers is whistling through the graveyard. Why this administration won't bite the bullet and nationalize the banks, is far beyond me.

Posted by: demtse | March 13, 2009 1:06 PM | Report abuse

Presumably, the negative comments here are from conservatives. Just listen to yourselves (and this is a representative sample of what we hear from most of the GOP in Congress and all of conservative opinions on talk radio). Whether or not you think Summers is selling something you buy, do you not recognize that you're offering nothing but negative prognostication based solely on your fears and personal disappointments? You may think yourselves realistic; the majority of Americans think you're a cancer. I for one expect our country to recover soon, and I sincerely hope you and your families benefit from the recovery. But please don't impede it by being nabobs of negativity.

Posted by: abqcleve | March 13, 2009 1:14 PM | Report abuse

ummm, we haven't spent the stimulus funds.

so why is summers lying (as is usual for him)?

Posted by: tru-indy | March 13, 2009 1:04 PM

A big chunk of the stimulus is already in circulation, particularly in state and local hands. Besides, as Summers clearly observes, his preliminary observations have to do with consumer behavior, which is largely predicated on confidence: the folks with jobs are beginning to relax and buy more than they did during the winter. That doesn't, as he cautions, mean trouble is over: it means an important factor in any market--confidence that you can pay back loans (and availability of same)--appears to be improving. Geez, are you so jaundiced that you refuse to read what he clearly states? It's one thing to question or challenge his reading of consumer statistics; it's another to flat out misrepresent what's going on. How do you live life being such a negative sourpuss?

Posted by: abqcleve | March 13, 2009 1:24 PM | Report abuse

Lots of things have to happen for things to stabilize. In my city, our local councilors immediately cut the school budget by 1.5 million, which coincidently exactly matched the stimulus money we were due. The dollars are appearing on paper, however, they haven't been spent and bureaucracy tends to divert money to non productive items.

Posted by: Justlistening | March 13, 2009 1:26 PM | Report abuse

WASHINGTON ? President Barack Obama's top economic adviser said Friday the nation's economic crisis has led to an "excess of fear" among Americans that must be broken to reverse the downturn.

"Fear begets fear," Lawrence Summers, the president's director of the National Economic Council, told a forum.

....JESUS Lawrence............Then tell your boss and clueless flip flopping leader Obama.

NO ONE has scared Americans MORE than Obama for the past couple of months..............FACT

And corrupt liberal media outlets like the POST have been your corrupt communicate this fear.........FACT again

Posted by: allenridge | March 13, 2009 1:38 PM | Report abuse

How about requiring drug urine tests for welfare recipients? Seems appropriate to me since I was always tested on a random basis and I was earning the money to pay these folks. I'd suspect it would save a bunch of money right off the bat and would morally and effectively counteract Obama's wealth redistribution plan that's being forced on us.

Posted by: GordonShumway | March 13, 2009 1:38 PM | Report abuse

Shoeshine having shined up his latest teleprompter asks what he can do -

using only the smaller personal portable teleprompter he now currently carries.

Barney advises him that he wishes he had one. One what ? muuuuuuahahahaha

Posted by: webber7 | March 13, 2009 1:39 PM | Report abuse

Allenridge wants to require drug tests for welfare recipients. Right on, brother. This would be a humbling experience for the heads of Citibank, AIG, General Motors, etc., but I, for one, think this might be good for these welfare queens. As to Obama's wealth redistribution plan, I think we've had enough of class warfare in this country. The rich have been at war with the poor for a long time, and the rich won--now if they could just get rid of that pesky minimum wage...

Posted by: macgriffith | March 13, 2009 2:08 PM | Report abuse

My bad. That wasn't allenridge who wanted the drug tests--it was GordonShumway. I read the wrong line. Allenridge, it turns out, is against the government communicating unnecessary fear, like, for example, the fear that Iraq had nuclear weapons. I bet Allenridge was really mad about that one.

Posted by: macgriffith | March 13, 2009 2:19 PM | Report abuse

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