Summers: Biden’s ‘Wall of Money’ Helped Cause Inflation, Hitting Brakes Won’t Be Easy – Fixing Inflation Spirals ‘Often’ Causes Recessions

On Wednesday’s broadcast of CNN’s “Cuomo Primetime,” economist Lawrence Summers stated that the Biden administration isn’t “recognizing just how much demand is being created by the tremendous wall of money” they released with previous spending packages, inflation causes a spiral, and breaking inflation spirals requires “some kind of dramatic action and those kinds of dramatic actions often cause recessions. So, I think we’re speeding down the road at a really rapid rate, it’s kind of a downhill road, and it’s not going to be so easy to put the brakes on here, and that’s why I’m concerned.”

Summers said, “I think they’re just not recognizing just how much demand is being created by the tremendous wall of money, 15% of GDP in one year, that they released last spring. And that, in conjunction with the central bank, the Fed that keeps the interest rate at zero that’s buying all kinds of bonds and mortgages, we’re in the middle of a housing boom, just sets off a dynamic. Then the thing about inflation is you start chasing your tail. Rising inflation of inputs leads firms to raise their prices, that leads other firms to raise their prices, and the whole thing spirals. It can be broken. But it needs to be broken by some kind of dramatic action and those kinds of dramatic actions often cause recessions. So, I think we’re speeding down the road at a really rapid rate, it’s kind of a downhill road, and it’s not going to be so easy to put the brakes on here, and that’s why I’m concerned. And I think that the policymakers in Washington, unfortunately, have, almost every month, been behind the curve. They said it was transitory. It doesn’t look so transitory. They said it was due to a few specific factors. It doesn’t look to be a few specific factors. They said when September came and people went back to school that the labor force would grow, and it didn’t happen.”

Summers added that he doesn’t think the Build Back Better reconciliation bill or the infrastructure bill will increase inflation.

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