Summers Will Be Wrong On His Assumption That QE Was Good. We Are Germany In The 30's. Only Difference Inflation Has Not Started Running.

Lawrence Summers: History Will Overwhelmingly Approve Fed's Easing

Thursday, 21 Nov 2013 11:30 AM

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The Federal Reserve’s decision to make unprecedented asset purchases to prop up the U.S. economy was the right call, former Treasury Secretary Lawrence Summers said.

“On the question of whether the Fed stepping up and providing liquidity when no one else would was the right thing to do, I think historians are going to judge that about 98 to 2,” Summers said, speaking on Bloomberg Television with Stephanie Ruhle from the Robin Hood Foundation’s investors conference in New York.

Summers, 58, said he’s a Democrat and is more interested in whether monetary policy benefited the middle class than Wall Street, while stock market gains have been a side effect of the asset purchases known as “quantitative easing.”

“The primary consequence of QE is that we’ve avoided the bottom falling out of the economy in the way that it did when they didn’t do QE in 1930 and 1931,” said Summers, a Harvard University professor. “As a consequence of saving the economy, has it been better for Wall Street? Yes, it has been. Is that a reason not to save the economy? I surely don’t think so.”

Summers said he wasn’t going to make a “precise judgment” on when bond buying should slow. The Federal Open Market Committee plans to press on with $85 billion in monthly purchases until it sees substantial improvement in the outlook for the labor market.

While U.S. employers last month added 204,000 workers, the Fed probably won’t decide to taper its purchases until a March 18-19 policy meeting, according to the median of 32 economist estimates in a Bloomberg News survey Nov. 8.

Summers also said that the economy lately hasn’t shown an ability to grow without bubbles.

“It has been a long time since we have had rapid, healthy growth in the country,” Summers said. “That is not an argument for bubbles. That is an argument for changing the framework.”

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