BusinessWeek Writes: Larry Summers Has a Wintry Outlook on the Economy

Larry Summers, the man who was almost chairman of the Federal Reserve, is surprisingly gloomy about U.S. growth prospects. In a recent speech at the International Monetary Fund, he suggested the U.S. might be stuck in “secular stagnation”—a slump that is not a product of the business cycle but a more-or-less permanent condition.

Summers’s conclusion is deeply pessimistic: If he’s right, the economy is incapable of producing full employment without financial bubbles or massive stimulus, both of which tend to end badly. The collapse of the debt-fueled housing bubble led to the financial crisis of 2007-09, and some policymakers worry that the Fed’s easy-money policy is setting the economy up for another fall. Witness the Dow Jones industrial average at 16,000.

“Conventional macroeconomic thinking leaves us in a very serious problem,” Summers said in his speech. “The underlying problem may be there forever.” He added: “We may well need in the years ahead to think about how to manage an economy where the zero nominal interest rate is a chronic and systemic inhibitor of economic activity, holding our economies back below their potential.”

Read The Rest Of The Article Here

Mr. Summers is right on the money.  Exactly as I have argued before, we now know the true reason behind his candidacy withdrawal from FED Chairmanship role.  Unlike Janet Yellen who is a cheerleading fool who believes she can control the markets, Mr. Summers has a clear view of what’s coming.

He doesn’t want to be at the helm of the next substantial economic and financial market downshift that will start in 2014. Further, he is very well aware that the FED is the primary source of the problem. Instead of creating economic stability and an environment that is conducive to productive capital allocation, the FED’s have blown bubble after bubble in order to give the appearance of economic stability. Yet, any such economic stability is a mirage at best.  In reality it is a ticking time bomb. 

If we can learn anything from history, every financial bubble eventually bursts. Some spectacularly so and some with the whimper. As my timing work illustrates, the bear market will start in early 2014 and complete itself in 2017. I expect to see some fireworks as the market deflates back to where it should be. 

Did you enjoy this post? If so, please share our blog with your friends as we try to get traction. Gratitude!!!