Feb. 13 (Bloomberg) -- President Barack Obama’s top economic adviser said it will take a while for the fiscal stimulus and financial-rescue plan to have an impact, warning that the slump will probably continue “for some time.”
“Lags are long with respect to policy, and I don’t think we can offer the prospect that problems that were created over a very long time period,” will be fixed in “a matter of months,” Lawrence Summers, director of the White House’s National Economic Council, said in an interview today. Still, he said the stimulus will help ensure the unemployment rate doesn’t hit 10 percent.
Summers’s remarks reflect private forecasters’ expectation that the bulk of the impact of the $787 billion package of tax cuts and spending measures approved in the House today will come next year.
Summers also called on overseas policy makers to step up their efforts to combat the global downturn. Governments in Japan, Europe and China are “probably not” doing enough, he said in the interview on Bloomberg Television’s “Political Capital with Al Hunt,” scheduled to air this weekend.
The White House economics director defended Treasury Secretary Timothy Geithner’s financial-rescue plan, while acknowledging that shareholders in banks were disappointed at the lack of details this week.
‘Courageous’ Geithner
Geithner gave a “courageous” speech Feb. 10 in outlining the Obama administration’s plan, Summers said. The program contained three main elements: fresh government capital for some of the country’s biggest financial institutions; a program of as much as $1 trillion to promote new lending to consumers and businesses; and a toxic-debt fund of as much as $1 trillion.
Summers signaled today that the administration is open to allowing foreign investors to participate in the Public-Private Investment Fund. He also said that private investors have expressed an interest. The program is designed to remove illiquid assets clogging bank balance sheets.
“There have been many expressions of interest in providing that private capital,” said Summers, who was Treasury secretary in the Clinton administration.
Asked about the stock-market reaction to the Geithner announcement, Summers said “the president has really asked us all to focus on the medium term, the long term, not to focus on market movements on a day-to-day basis.” He added that “that’s not really the test we’re going to apply in judging whether this plan works.”
Summers hailed the agreement between House and Senate lawmakers this week on a compromise stimulus package, saying it contained the main elements of what Obama had sought. He graded it an ‘A.’
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