Interview on Marketwatch to Lawrence Summers
On U.S. Economic Growth.
"Even if rapid growth does materialize, the secular-stagnation argument is not that rapid growth is impossible; it is that growth with financial stability is very problematic. My fear is that if we do achieve sustained growth based on current financial conditions, before long it would give rise to significant bubbles. That’s why I think we need a more investment-oriented approach to supporting growth and the reason I put such emphasis on fiscal policy".
On Bubbles Concerns
"You already see some things that are concerning. The various credit spreads are at very low levels. Covenants that protect lenders are increasingly coming out of corporate-bond agreements. You are seeing the slow-motion LBO of America as companies issue more and more debt and buy back equity. None of these things are a reason for immediate alarm, but they are trends that, if continued, could prove worrisome and likely would continue if the economy started to grow rapidly in the context of current low interest rates"
"Periods when nominal rates are near zero, and when short-term real interest rates are negative, tend to be periods when there is a great deal of risk chasing. That is not, in my judgment, an argument for simply removing monetary support for the economy — to do so would be courting needless substantial unemployment. It is a reason to pass the baton to fiscal policies and structural policies that promote investment in exports rather than trying to support the economy through ever-lower capital costs".
On U.S. Economic Growth.
"Even if rapid growth does materialize, the secular-stagnation argument is not that rapid growth is impossible; it is that growth with financial stability is very problematic. My fear is that if we do achieve sustained growth based on current financial conditions, before long it would give rise to significant bubbles. That’s why I think we need a more investment-oriented approach to supporting growth and the reason I put such emphasis on fiscal policy".
On Bubbles Concerns
"You already see some things that are concerning. The various credit spreads are at very low levels. Covenants that protect lenders are increasingly coming out of corporate-bond agreements. You are seeing the slow-motion LBO of America as companies issue more and more debt and buy back equity. None of these things are a reason for immediate alarm, but they are trends that, if continued, could prove worrisome and likely would continue if the economy started to grow rapidly in the context of current low interest rates"
"Periods when nominal rates are near zero, and when short-term real interest rates are negative, tend to be periods when there is a great deal of risk chasing. That is not, in my judgment, an argument for simply removing monetary support for the economy — to do so would be courting needless substantial unemployment. It is a reason to pass the baton to fiscal policies and structural policies that promote investment in exports rather than trying to support the economy through ever-lower capital costs".
