Former American treasury secretary and former Harvard University PresidentLarry Summers has reached some very progressive conclusions about American stimulus and how to finance it. He appeared this Sunday on MSNBC‘s Fareed Zakaria and clearly and forcefully explained what economists like myself have been explaining for decades that there is nothing to fear about allowing the central bank to finance a large chunk of the debt through the purchase of Treasury bills and medium and longer term debt in order to finance a series of recovery stimulus packages at historically low interest rates. He also produced a detailed accounting of the size of damage that the COVID 19 pandemic has inflicted on the United States over the past 9 months. He argues that the total is over 16 trillion US dollars which is likely to be an understatement of the damage which Americans who have caught the virus will suffer because of lasting negative health effects associated with the virus. Currently after 9 months of the pandemic the ratio of debt to the GDP has risen from 106.7 % of the GDP in 2019 to over 135.6 % of the GDP in 2020. This is a shocking rise but the pandemic is the one of the greatest shocks since the Crash of 1929 and the Great Depression which followed it.
Good for Larry Summers to appreciate accurately the situation and prescribe the appropriate policy option. There is nothing to fear in the debt, inflation or exchange rate data and much work to be done .