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Business News/ News / World/  Larry Summers warns of financial-crisis risk from Trump economic plans
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Larry Summers warns of financial-crisis risk from Trump economic plans

Former US treasury secretary Lawrence Summers pulls up Trump economic plans saying that the deregulation in some areas like finance is hugely dangerous

Donald Trump’s proposal called for filling an estimated $1 trillion 10-year funding gap of spending on bridges, highways and airports through private investment and tax credits. Photo: APPremium
Donald Trump’s proposal called for filling an estimated $1 trillion 10-year funding gap of spending on bridges, highways and airports through private investment and tax credits. Photo: AP

Washington: Former US treasury secretary Lawrence Summers attacked the policy proposals of Donald Trump on several fronts, saying the president-elect’s plans for deregulation were setting the stage for the next financial crisis.

“The deregulation in some areas like finance is hugely dangerous," Summers said Sunday in an interview on Fox News Channel. “Who wants to go back to the era of predatory lending? Who wants to go back to the era of vastly over-levered banks?"

Members of Trump’s transition team have vowed to dismantle the 2010 Dodd-Frank Act, the principal legislative response to the 2008-09 global financial crisis, although Trump himself has given mixed signals on Wall Street regulation. During his campaign, he railed against Dodd-Frank, which greatly increased restrictions on banks operating in the US, but also said he would reinstate a separation between bank lending and securities underwriting, which was removed in 1999.

Summers, former chief economic adviser to President Barack Obama and Treasury secretary under president Bill Clinton, also took aim at Trump’s protectionist rhetoric. That’s already caused a plunge in the Mexican peso, giving Mexican manufacturing an extra advantage over US competitors.

Jawboning automakers

“Every business deciding whether to locate in Ohio or Mexico is finding Mexico 20% cheaper," said Summers, who’s now a Harvard University professor. “That’s a huge tilt against the United States."

The peso has lost 14% against the dollar since the 8 November election.

Trump, via Twitter, has jawboned a number of companies, including automakers General Motors Co. and Toyota Motor Corp., on their plans for expansion in Mexico. “Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax," Trump said in a Twitter post on 5 January.

Trump’s plans to reduce corporate taxation, Summers said, would “hugely increase inequality" and could also help strengthen the dollar, further hurting US exporters and the people who work for them.

While Summers favours a big increase in infrastructure spending in the US as a way to boost productivity and growth, he called Trump’s plans on that front “a Potemkin village of nothing."

Trump’s proposal called for filling an estimated $1 trillion “10-year funding gap" of spending on bridges, highways and airports through private investment and tax credits. Prospects for the plan in Congress among Republican lawmakers are unclear. Bloomberg

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Published: 09 Jan 2017, 11:54 AM IST
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