Ex-US treasury secretary warns about 'most toxic' debts

PUBLISHED : Friday, 15 April, 2016, 12:15pm
UPDATED : Friday, 15 April, 2016, 1:47pm

Former Clinton Treasury Secretary Larry Summers said Thursday that pushing off repairs of crumbling infrastructure to future generations creates the "worst and most toxic" debts.

Summers called the phenomenon "repressed deficits." Austerity for austerity's stake passes debt along in different ways, he says .

"You're doing it in the wrong way, he said. "Because, say what you will, the debt that we issue in the regular way compounds at a rate under 2 per cent. On the other hand, when you defer maintenance for a generation, those costs compound far faster."

"We need to think about our fiscal health in a much more holistic way that recognizes that the worst and most toxic debts are the debts of underinvestment," Summers said.

By investing now, he said the economy would grow faster in the short run, expand capacity in the medium term, and set-up a better financial situation over the long haul.

"The failure to spend adequately is what's creating and what's increasingly seeming like ... secular stagnation in much of the industrial world," said Summers, a former Obama administration economic advisor.

"Markets are telling you that nowhere in the industrial world is there an expectation that inflation is going to reach the 2 per cent [Fed] target over the next decade," he continued. "That's telling you something is off."