Top U.S. economist warns of economic tailspin

White House economic adviser Larry Summers speaks at the 2010 meeting of the Wall Street Journal...

White House economic adviser Larry Summers speaks at the 2010 meeting of the Wall Street Journal CEO Council in Washington in this November 15, 2010, file photo. REUTERS/Hyungwon Kang/Files

Mark Dunn, QMI Agency

, Last Updated: 10:13 AM ET

OTTAWA -- A former treasury secretary under President Bill Clinton painted a grim outlook for the U.S. economy Thursday, but is hopeful legislators would find a compromise to avert an economic tailspin.

Larry Summers is the latest top economist to warn of the dire consequences if the paralysis on Capitol Hill continues and politicians fail to address the fiscal cliff the country is headed to in January.

"If we go over the fiscal cliff the overwhelming likelihood is that we'll have a severe recession," the former Harvard University president said about the $600 billion combination of tax hikes and deep spending cuts.

"The overwhelming likelihood is that damage will be done to our national security because of the cuts in the defence budget.

"The overwhelming likelihood is that America's legitimacy as a wise, powerful well-governed nation in world affairs would be called into question."

Summers, a former economic adviser to President Barack Obama, said "it would be a catastrophe if nothing was done, a catastrophe."

He said too much is at stake for policy-makers not to find a solution before the end of the year deadline, or very early in the New Year.

Finance Minister Jim Flaherty said this week that a recession south of the border would drag the fragile Canadian economy down.

Summers said Obama has signalled he's willing to bend on some of the contentious issues standing in the way of a deal, including social programs, tax reforms, finding new revenues and cutting domestic spending.

And he said he's "mildly encouraged" that Republicans have also shown some willingness to be flexible on tax reforms to raise revenues - not tax increases.

"I am guardedly optimistic that we will see some kind of resolution."

Summers spoke at a forum hosted by the Canada 2020 think-tank.

Mark.Dunn@sunmedia.ca

Twitter:MarkDunnSun

 


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