Larry Summers predictions

Investment Analysis Clubs Macro Economic Trends and Risks
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I’m a great fan of Larry Summers, the economist and former Treasury Secretary. Everything he says makes sense to me. He’s not a Pollyanna but rather looks ahead to the problems that policies can cause in the Macro economy.

Here are snips of an hour-plus interview.

https://www.nytimes.com/2022/03/29/podcasts/transcript-ezra-…

**Transcript: Ezra Klein Interviews Larry Summers, The New York Times, March 29, 2022**

**...**

**LARRY SUMMERS: I’m probably as apprehensive about the prospects for a soft landing of the U.S. economy as I have been any time in the last year. Probably actually a bit more apprehensive. In a way, the situation continues to resemble the 1970s...And so now I think we’ve got a real problem of high underlying inflation that I don’t think will come down to anything like acceptable levels of its own accord....**

**I think the combined idea that we’re going to have 3 and a half percent unemployment for the next three years and that while that’s happening inflation is going to decline substantially is not something that is supported by anything in the relevant economic history, nor is it consistent at all with market inflation expectations...**

**I don’t think we’re going to avoid and bring down the rate of inflation until we get to positive real interest rates. My sense is that given the likely paths of inflation, we’re likely to have a need for nominal interest rates, basic Fed interest rates, to rise to the 4 percent to 5 percent range over the next couple of years. If they don’t do that, I think we’ll get higher inflation. And then over time, it will be necessary for them to get to still higher levels and cause even greater dislocations...**

**What are the odds that the economy will go into a recession in the next year and what are the odds that the economy will go into recession in the next two years? Depending on just how you calculate the answer, it’s about 50 percent that it will go in the next year and about 75 percent that it will go in the next two years....** [end quote]

This is a very long interview. These are just a few snippets.

Based on his track record of predicting the demand-driven inflation we are seeing now , I believe Summers. There are several METARs who object to the idea that current inflation is demand-driven, but BEFORE you respond, read the article. Summers makes a rock-solid case that inflation in 2022 is demand-driven.

A fed funds rate of 4% to 5% will still be a negative REAL yield unless inflation comes down. But Summers thinks that’s the minimum. That will severely damage asset prices, including stocks, bonds and real estate.

Not to mention the effect of the next recession on the asset bubbles.

This article stresses the Risks in the METAR story…and, by extension, our portfolios.

Wendy

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I’m a great fan of Larry Summers, the economist and former Treasury Secretary

OK.

Everything he says makes sense to me.

Because he agrees with your already made conclusions.

Here’s an interesting article: in Clinton’s term he was full-throttle for deregulation along with Greenspan, including derivatives and bank and bond clearing. You know, because the bankers wouldn’t do anything stupid. He was against regulating deceptive mortgage practices, and fully in favor of letting the lenders - alone - decide who should get mortgages. And that worked out so well, didn’t it?

And following the 2008 debacle he shouted down anyone arguing for a larger stimulus, which handed us a grinding 6 year slog to return to normalcy. He supported every bailout of a Wall Street firm that was proposed, but not anything to help homeowners underwater on mortgages because of the collapse.

**Summers helped midwife a major series of policy errors dating back 20 years that led directly to what many economists now believe was the worst financial crisis ever. In particular, Summers's opponents—he faces a phalanx of opposition among Democrats on the Hill—point to the Commodities Futures Modernization Act of 2000, which effectively deregulated the global market in over-the-counter derivatives and was Summers's signal achievement as Treasury secretary. The final report of the Financial Crisis Inquiry Commission convened by Congress in 2009 puts the government's failure to rein in these derivatives at "the center of the storm."**
https://www.theatlantic.com/business/archive/2013/09/the-com…

Of course stopped clock and all, he may - or may not - be right about the current inflation surge:

Larry Summers Was Only Half-Right About Inflation
The economist is being treated like the prophet of the Biden economy. Not so fast.
https://slate.com/business/2021/12/inflation-cpi-larry-summe…

So like who you like, but let’s not pretend he’s got some secret handle on truth. Or prediction. And to boot, he’s not a very nice man.

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< he’s not a very nice man. >

Oh, thanks for the information! That means he must be wrong!
Wendy

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Goofy posts,

Here’s an interesting article: in Clinton’s term he was full-throttle for deregulation along with Greenspan, including derivatives and bank and bond clearing. You know, because the bankers wouldn’t do anything stupid. He was against regulating deceptive mortgage practices, and fully in favor of letting the lenders - alone - decide who should get mortgages. And that worked out so well, didn’t it?

And following the 2008 debacle he shouted down anyone arguing for a larger stimulus, which handed us a grinding 6 year slog to return to normalcy. He supported every bailout of a Wall Street firm that was proposed, but not anything to help homeowners underwater on mortgages because of the collapse.

I’ve got to give Larry his due. His brand of “economic magic”, deficit scolding and inflation hawkery was a bonanza for early retirees with time on their hands. With so many people afraid to spend, I took so many bargain cruises from 2008 to 2012 that I felt like I joined the Navy. I continue to be astonished at the $487 I paid for a week long cruise of the Adriatic Sea round-trip from Venice on Royal Caribbean. You couldn’t have stayed in an equivalent hotel room in Venice for the two nights we were docked for the $487.

Once I tired of the cruise life and returned to Portland, I noticed that Larry’s prolonged housing recession was yielding some incredible real estate bargains. In general, I have no interest in owning a home, but if you can make one cheap enough to where it has some prospect of getting an S&P500-like return, I might place a bet. In 2012 I bought a home in a Portland suburb for 70%-off it’s 2008 price. It’s since nearly quadrupled in value.

To paraphrase Saturday Night Live’s Garrett Morris playing Chico Escuela, “Larry was berry, berry good to me”, but terrible for the country.

intercst

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Oh, thanks for the information! That means he must be wrong!

No, but if you read the attached article you’ll see that he rarely bothers listening to other points of view.

Maybe there’s a lesson there worth pondering.

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< he’s not a very nice man. >

Oh, thanks for the information! That means he must be wrong!

No, I didn’t get that at all as part of Goofy’s reasoning process. Hence, the “To boot” part.

Goofy’s arguments were in the prior paragraphs.

Pete

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To put full faith in what any one person says particularly in regards to my economic future is unwise.
Experience and knowledge in stock investing, managing portfolio in different markets are good teachers. I read a lot from various sources.

I’m dubious of any “talkers” on tv.

Here are a few jokes about economists. :slight_smile:

https://www.livewiremarkets.com/wires/nine-jokes-about-econo…

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LuckyDog2002

Here are a few jokes about economists. :slight_smile:

Good list of nine, but one was missing:

“If every single economist in the world were laid end to end they still wouldn’t reach a conclusion.”

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Goofy’s arguments were in the prior paragraphs.

The Return of Global Inflation

Nor is this inflationary surge limited to wealthy countries. Emerging markets and developing economies have been hit by a similar wave, with 78 out of 109 EMDEs also confronting annual inflation rates above 5%. That share of EMDEs (71%) is about twice as large as it was at the end of 2020. Inflation thus has become a global problem – or nearly so, with Asia so far immune. …

The primary drivers of the inflation spike are not uniform across countries, particularly when comparing AEs and EMDEs. Diagnoses of “overheating,” prevalent in the US discourse, do not apply to many EMDEs, *where fiscal and monetary stimulus in response to COVID-19 was limited, and where economic recovery in 2021 lagged well behind the AE rebound.*
https://blogs.worldbank.org/voices/return-global-inflation

AE = advanced economies
EMDE = emerging markets, developing economies

The inflation we are seeing is a result of large jumps in energy prices (like 1973), supply chain disruption (lower supply) combined with increased demand (stimulus). The tight labor market is also contributing as employers at last, belatedly find they have to pay people more to attract them to menial jobs. One of the broadest, and most destabilizing sectors is “food”, impacted by all of the above, and (for Europe, at least) the future prospects of losing vast agricultural productivity in Ukraine short and medium term.

As the analysis on the world bank site notes, oil prices along are up 77% in the past two years, and that is a cost which ripples through every sector from manufacturing and production to transportation. Solve the energy price problem and you solve most of the inflation problem, as happened in the 80’s, when oil prices crashed after a decade when the OPEC embargoes finally collapsed.

That doesn’t help people today, obviously, but the danger is that the Fed acts too aggressively and energy prices do drop, or the Fed doesn’t act aggressively enough and energy prices don’t. Either way a soft land will be difficult, but not impossible. It’s been done before, although it’s more rare than a resulting recession, or as the one in 1992 is sometimes called, a recessionette.

Larry Summers has been complaining about stimulus and spending since 2008, and he’s been wrong. He’s now trying to portray his past history as somewhat different than the reality, but that’s not unusual, especially for an economist involved in politics.

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Here are a few jokes about economists. :slight_smile:

Allegedly, President Truman requested a one-armed economist because he was so tired of “on the other hand…”

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We are now beginning to see some disinflation coming back off the 7.4% annualized rate.

Larry Summers is expecting hell as if his tenants of supply side lite econ wont be done. He is wrong. Not that supply side charts and ideas are partially in play but that the focus should remain on slow GDP growth policies.

He is right we are going into a recession. Unlike supply side recessions an early demand side recession will MOST LIKELY be shallow.

Worst of all about Larry is his urgency to hold the megaphone as if only he is right. He is non stop second guess plenty of other people on the FED who can do the job. The reason Larry is grabbing the press…ironic as it is because he is outdated.

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Here are a few jokes about economists. :slight_smile:

Che Guevara was asked what his qualifications were to be named Minister in charge of the Economy. “I thought Fidel asked if there were any communists present so I raised my hand.”

The Captain

Emilio, a sales rep I befriended at IBM had gone to Cuba and worked with Che Guevara because he thought socialism was the next best thing after sliced bread. He became disillusioned and came to Venezuela. He told me lots of interesting anecdotes about working with ‘El Che.’

Things were getting behind schedule and Emilio made a suggestion. “Comrade Che, this is an American idea but quite revolutionary. Things are delayed because people put stuff in the drawers and forgot about them. The suggestion is to have desks without drawers so that nothing can be forgotten.” Che replied, “Comrade Emilio, too revolutionary. When Fidel sees how far behind we are he will have us all shot.”

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Here are a few jokes about economists. :slight_smile:

The economist is a gentle man,
with neither sword nor pistol.
He walks along most daintily,
because his balls are crystal.

DB2

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LARRY SUMMERS: I’m probably as apprehensive about the prospects for a soft landing of the U.S. economy as I have been any time in the last year. Probably actually a bit more apprehensive. In a way, the situation continues to resemble the 1970s…And so now I think we’ve got a real problem of high underlying inflation that I don’t think will come down to anything like acceptable levels of its own accord…

Something I have been thinking of is the demographic implications - namely Millennials - they seem to be following the same path as the baby boomers; but delayed by 15 years. In the 1970s the boomers were forming families; buying houses, etc… and the implications for inflation were severe - we are now in a similar phase for the Millennials.

tecmo
…

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You can see Larry Summers every week on Bloomberg’s Wall Street Week. He is critical of the feds for being slow to react and fears stagflation is coming. 50% odds on recession a reasonable guess. Soft landing possible but not easy. Effects of economic slowdown already visible. But recession still a ??