ABC News’ Matthew Jaffe reports: National Economic Council director Larry Summers today defended the Obama administration’s actions on a wide range of issues, including the stimulus act, the soaring deficit, and the bailout program.
Holding court for over an hour at the Peterson Institute in Washington this morning, President Obama’s top economic adviser acknowledged concern that the nation’s unemployment rate hit a 26-year high of 9.5 percent last month , but said that does not mean that the $787 billion stimulus plan has failed.
“Unemployment is substantially higher and job loss has been greater than most observers predicted last winter and unemployment is likely to rise in the coming months. This is obviously a major area of concern,” he acknowledged. “But contrary to a significant amount of commentary, this does not provide a basis for concluding that the Recovery Act is falling short of its goals.”
“Both administration and independent forecasts predicted that only a very small part of the total job creation expected from the Recovery Act would take place within six months,” he continued. “Indeed, a Council of Economic Advisers’ study predicted that only 10 percent of the total job impact of the Recovery Act would take place during calendar year 2009. Given lags in spending and hiring, the peak impact of the stimulus on jobs was expected not to be achieved until the end of 2010.”
The government’s massive spending to stem the current recession sent the budget deficit over the $1 trillion mark for the first time ever earlier this week. But Summers today refuted growing concerns about the deficit by arguing that a prolonged recession would have presented an even bigger problem.
“I think the greatest risk to future US deficits would be uncontrolled economic contraction in the United States,” he said. “Containing this downturn and preventing the kind of debt dynamics you saw in Japan or you saw during the Depression in the United States has to be the first priority of anyone concerned with national credit worthiness or any intellectually honest deficit hawk. Rescuing the economy has to be the first priority.”
The administration, stated Summers, has already made a great deal of progress in these rescue efforts.
“If we were at the brink of catastrophe at the beginning of the year, we have walked some substantial distance back from the abyss,” he stated.
Some positive signs came from the financial sector this week as major banks like Goldman Sachs and JP Morgan Chase released second quarter earnings reports that exceeded analysts’ expectations.
“I think it’s crucial to recognize that the increased health of financial firms is a positive indicator for the economy,” Summers said. “The ability of financial firms to pay back the resources they received from the government is a positive and a favorable sign, but let me be absolutely clear: there is no financial institution that would be reporting the kind of positive results that we have seen in the last quarter, but for extraordinary public support provided by the government.”