Former Treasury Secretary Larry Summers, now a Harvard professor, warns that “the dangers facing the global economy are more severe than at any time since the bankruptcy of Lehman Brothers in 2008.”
“Policymakers badly underestimate the risks of both a return to recession in the west and of a global growth recession. If a recession were to occur, monetary policymakers lack the tools to respond," he writes in The Washington Post.
“The problem of secular stagnation - the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies - is growing worse in the wake of problems in most big emerging markets, starting with China,” he writes.
"This raises the specter of a vicious global cycle in which slow growth in industrial countries hurts emerging markets which export capital, thereby slowing western growth further. Industrialized economies that are barely running above stall speed can ill-afford a negative global shock.”
“There is essentially no room left for easing in the industrial world. Interest rates are expected to remain very low almost permanently in Japan and Europe and to rise only very slowly in the United States. Today’s challenges call for a clear global commitment to the acceleration of growth as the main goal of macroeconomic policy. Action cannot be confined to monetary policy,” he writes.
Other experts have also recently painted a troubled future for the U.S. economy.
Bill Gross, who in January predicted that many asset classes would end the year lower, said U.S. equities have another 10 percent to fall and investors should sit out the current volatility in cash.
The whipsaw market reaction to the lackluster U.S. jobs report last week shows that markets, especially stocks, high-yield bonds and some emerging market debt, are trading like a casino, Gross told Bloomberg News.
Meanwhile, Marc Faber, publisher of the Gloom, Boom & Doom Report, says the Federal Reserve should have started raising rates years ago, but all that may not matter because the U.S. stock market could be on the verge of yet another "very significant correction," perhaps as bad as the 1987 crash.
"The market may not crash right away, but it's possible that it will," he told Bloomberg Television.
"It will enter a longer-term time-frame of unattractiveness and where prices may actually go lower, and significantly lower. We could have a decline like 1973-74, which was a slice of hope where the market cap going up, and then went down again,” he said.
“Or it could be like 1987, where at some point we have a very significant correction,” he warned.
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