Summers Sees ‘Stupid Posturing’ Before U.S. Debt Limit Raised
(Bloomberg) -- Former U.S. Treasury Secretary Lawrence Summers predicted “a lot of stupid posturing” by American politicians in coming weeks over raising the federal debt limit, before they ultimately agree to do it.
Democrats and Republicans remain at odds with potentially just weeks to go until the debt ceiling is breached. Treasury Secretary Janet Yellen is urging Congress to increase the limit as soon as possible, warning that the Treasury’s extraordinary measures to avoid a breach could run out as soon as October. Republicans are refusing to assist.
“As an investor I would hold Treasuries, because you’re going to see a lot of stupid posturing and games of chicken in Washington, but I have every confidence that this will be worked out and the United States will honor its debts,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin.
Democratic congressional leaders have highlighted that their party joined Republicans in suspending the debt ceiling under GOP President Donald Trump. The Biden administration has also flagged that much of the increase in debt since the last, two-year agreement to set the limit aside has come from Republicans’ tax cuts and emergency spending due to the pandemic.
Republicans have tied their hard-line position to opposition to the $3.5 trillion tax and social spending package that Democrats are now working to push through Congress via a budget reconciliation bill -- a fast-track process that bypasses the filibuster, removing the need for Republican support in the Senate.
“Everybody just needs to grow up,” said Summers, a paid contributor to Bloomberg. “No one’s really in doubt that when we’ve borrowed money, the United States is going to pay it back. And so this whole ritual of pretending that we’re going to block paying it back I think is a fairly sorry spectacle for our country. It diverts enormous amounts of political energy that could go to solving real problems rather than artificial and contrived ones like the debt ceiling.”
Summers also said that it’s “way premature” to predict inflation will start to recede after data this week showed that consumer prices rose less than forecast in August.
The labor market still looks tight, the housing market remains strong, supply chains are strained and there are signs that expectations for inflation over the one- and three-year time horizons are picking up, he said.
Asked why bond markets weren’t expressing more concern, Summers said that was the “biggest puzzle” for him, and that investors may be reacting to a lack of worry about prices among Federal Reserve officials.
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