Hints of a Recovery

Already,there are signs of economic healing,Mr.Summers pointed out.Key credit spreads are already substantially narrower than last fall.Credit costs are declining.It is our hope that the program will create virtuous circles.The housing cycle must be contained by direct intervention by GSEs to bring down mortgage rates,and through setting of standards directed at payment relief,preventing foreclosures.Lower mortgage rates function like tax cuts.Taken together,these steps address each of the vicious cycles.They will permit the normal processes of economic growth to re-engage over time,the former Treasury Secretary and president of Harvard University predicted at The Brookings Institution.

Anatomy of a Crisis

Greed begets greed and the bubble grows,White House economist Larry Summers said.Then greed gives way to fear,and this fear begets fear.This is the paradox at the heart of fifnacial crises.What is the task of policy in this environment? We need a program that breaks and reverses the vicious cycles.The President's plan moves on jobs,credit and housing,attacking the vicious cycles.The Recovery and Expansion Act is the largest such plan in American history.Already its impacts are being felt,retaining teachers and cops,increasing take-home pay and extending health insurance.Contracts are underway for infrastructure projects.Consumer spending appears to have stabilized,and the financial plan addresses credit contraction.There are two pillars in the President's plan:first,one trillion or more for financing mortgages,student and small business loans through the TALF program,and a public-private partnership enabling banks to divest toxic assets;second,assuring that our banking system is well-capitalized and able to lend on a substantial scale,which starts with the stress test of major banks,Larry Summers noted.

Larry Summers:Circles and Cycles

Larry Summers,Chairman of the White House Economic Council,spoke last week at The Brookings Institution,a Washington think tank.Most recessions are a reaction to inflation-fighting policy,Mr.Summers observed.Others,such as the current one,are reactions to excess.Fifty trillion dollars of wealth have been lost in the past 18 months,leading to declining demand,Gross Domestic Product and employment.Fourteen million jobs have been lost.Our goal is to bring about an expansion that is fundamentally sound,not driven by excess.Without it,we cannot achieve any national goal.Sometimes the right economic metaphor becomes,not a thermostat,but an avalanche,as today.A weakened financial system creates a vicious cycle.These are not processes that are self-correcting,the President's advisor explained.