I know that everyone is thinking of the upcoming Memorial Day weekend and the classic start to Summertime…but market practitioners need to also start thinking about a different Summer….Larry Summers to be exact! It’s not simply because he nailed the whole Secular Stagnation macroeconomic climate that engulfs us…or even that he shot to big screen fame in Social Network. It’s because he has to be considered a frontrunner to be Secretary of the Treasury in a President Hillary Clinton cabinet.
There are certainly a lot of twists and turns yet to go in the upcoming election as a Clinton victory is anything but a foregone conclusion. But were it to happen…here is where Summers stands out. He served under President Bill Clinton. He was appointed Undersecretary for International Affairs on the Treasury in 1993, before becoming Deputy Secretary of the Treasury under Robert Rubin and ultimately following Rubin as secretary in 1999. He then served under President Obama as Director of the National Economic Council. You toss in his years as President of Harvard University, and you see he has considerable street cred…certainly enough to be in the conversation.
So let’s start thinking about what Treasury Secretary Summers v 2 would do to combat the Secular Stagnation he predicted. At its very core, Secular Stagnation is about the preference for savings over investment. Would he encourage the government to access historically low borrowing rates and embark on fiscal spending – infrastructure spending as he mentioned at the Spring IMF meetings? Would he be persuaded by right wing views and pursue structural reform…perhaps look to roll back regulatory burdens? Is he comfortable with all the unconventional monetary tools that have been deployed? He does talk about the frustration of the efficacy of such tools, but is somewhat relaxed as they have seemingly done no harm.
As a scholar, what does he believe the US’s long term potential GDP is? Is the Fed’s summary of economic projections (those pesky dot plots) attainable at a 2% real rate? The questions that he can provide answers to goes on and on…
I, for one, am going to pay far closer attention to what he says in public. It should not be lost on anyone that he is beginning to appear more frequently in the media and is reasonably candid with his views. Treasury Secretary or not, he’s bound to have an impact on candidate Clinton’s thinking as we head into the November election – so stay tuned!
J.P. Morgan Asset Management does not predict outcomes of any political events, nor do we voice firm-wide opinions on any political candidates.