Call it naive, or the perfect demonstration of his abrasive personality, but Larry Summers, former Treasury secretary and, until recently, Fed chairman favorite, was in a pretty confident mood earlier this afternoon (Oct. 24).
“The United States received a reprieve from the grotesque. We did not default. Much better than the alternative. But make no mistake, [that is] no kind of important achievement,” he told an audience of advisors to the super-rich at a UBS Americas wealth management conference in New York.
Summers, however, was emphatic that, contrary to what a lot of people expect, the bitter political divide in Washington won’t send America to the brink of default again when the current debt ceiling is reached again, expected to be early next year.
“The good news is that even the most foolish of people, having shot themselves in the foot, rarely reload. And therefore I think it is very unlikely, exceptionally unlikely, that we will see another government shutdown or another march to the brink of default of this nature,” he said.
“In part, the fact that the [congressional midterm] election is drawing near, and those who push us towards the brink of default do not seem to have been rewarded politically, will act as a discouragement.”
In a generally upbeat speech about the state of the American economy, Summers even said the “manifest self-inflicted wound doesn’t seem to have been so large on the agenda going forward”, in contrast to concerns that the recent debt impasse could have significantly dented economic growth in the fourth quarter.
Chastened Republicans belonging to the more moderate wing of the party have already said things that appear to support Summers’ sanguine outlook about the risk of another standoff. But don’t celebrate too soon. With Republican senator Ted Cruz returning to Texas a hero for his pointless but attention-grabbing filibuster of the spending bill, and a civil war brewing inside the Republican party, we’re inclined to think the debate over debt and associated political tactics has some way to run yet.