(Bloomberg) — Former Treasury Secretary Lawrence Summers warned that the US is now likely headed toward a recession, with potentially 2 million Americans put out of work, thanks to the tariff increases now in train.<\/p>\n
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\u201cIt\u2019s more likely than not that we\u2019re going to have a recession \u2014 and in the context of a recession, we\u2019ll see an extra 2 million people be unemployed,\u201d Summers said on Bloomberg Television\u2019s Wall Street Week with David Westin. \u201cWe\u2019ll see losses in household income\u201d of $5,000 per family or more, he said.<\/p>\n
There will be \u201cvery important choices in the weeks ahead\u201d with regard to tariff plans by President Donald Trump that exceed even those of 1930 that \u201cmade the depression great,\u201d said Summers, a Harvard University professor and paid contributor to Bloomberg TV. It would be wise to be \u201cbacking off the policies that have been announced,\u201d he said.<\/p>\n
Financial markets are \u201cspeaking with incredible clarity\u201d about the impact of the tariffs, Summers said \u2014 highlighting that stocks have been surging on any headlines suggesting relief, and plunging on news suggesting the levies will go ahead.<\/p>\n
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\u201cWe\u2019re very likely, in the context of a recession, to see markets reach levels significantly below their current level,\u201d Summers said. \u201cI\u2019d be surprised if the bottom is yet in with respect to this phase and markets,\u201d he also said.<\/p>\n
A US economic downturn would have various other negative effects, he noted, including a wider budget deficit. \u201cThere will be financial distress that will affect higher-risk companies and also higher-risk countries in the global economy.\u201d<\/p>\n
Market \u2018Alarm\u2019<\/p>\n
While it\u2019s \u201chard to know\u201d about the risk of an economic slump morphing into a financial crisis, the former Treasury chief highlighted the tightening in regulations since the 2007-09 meltdown, which was directed at ensuring financial firms are well capitalized and that the system\u2019s so-called plumbing was functional. Deputy Treasury Secretary Michael Faulkender earlier Tuesday said that \u201cliquidity continues to flow\u201d and there were no \u201cimpediments\u201d despite the market volatility.<\/p>\n
\u201cI\u2019m less worried about the internal integrity of markets than I am by the external message that markets are sending \u2014 which I think is one of alarm,\u201d Summers said. In the absence of some corporate executives and academic leaders speaking up about their concerns with policy actions, markets are \u201csuch an important signal of where things are going,\u201d he said.<\/p>\n
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For the first time, the US is facing a recession caused by its own policy actions, he indicated. \u201cThere is nothing in the outside world that is causing this challenge. It is induced by the words and deeds of President Trump and his administration,\u201d he said. \u201cI don\u2019t know that there really is a historical precedent for what\u2019s being done now.\u201d<\/p>\n
\u201cThere would be a substantial resumption of normality\u201d in the economy if the government backs off on its \u201cpolicy errors,\u201d he said.<\/p>\n
\u2018B\u2019 Student<\/p>\n
\u201cThere\u2019s nothing complicated about this,\u201d Summers also said. It is \u201cintroductory economics\u201d that the imposition of a huge tax hike on the middle class, clouded with uncertainty, damages businesses and forces the economy downwards, Summers said. \u201cAny \u2018B\u2019 student will know that the answer to that is that it\u2019s a supply shock that raises prices and raises unemployment.\u201d<\/p>\n
It will be \u201cenormously costly for the United States and for the world economy\u201d if Washington jacks up tariff rates back to pre-World War II levels, Summers said. \u201cThe losses to markets, if all of this were sure to be implemented, would be many trillion dollars. And the stock market only measures a very small fraction of the losses to the economy from policies of this kind.\u201d<\/p>\n
(Updates with further comments starting in paragraph before \u2018Markets Alarm\u2019 subheadline.)<\/p>\n
\u00a92025 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"(Bloomberg) — Former Treasury Secretary Lawrence Summers warned that the US is now likely headed toward a recession,…\n","protected":false},"author":2,"featured_media":6367,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3090],"tags":[3662,51,3664,32,1700,3663,3661,16,15],"class_list":{"0":"post-6366","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-bloomberg","9":"tag-business","10":"tag-david-westin","11":"tag-donald-trump","12":"tag-economy","13":"tag-financial-markets","14":"tag-lawrence-summers","15":"tag-uk","16":"tag-united-kingdom"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/114310223159560969","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/6366","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=6366"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/6366\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/6367"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=6366"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=6366"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=6366"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}