{"id":589502,"date":"2026-04-06T17:09:20","date_gmt":"2026-04-06T17:09:20","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/589502\/"},"modified":"2026-04-06T17:09:20","modified_gmt":"2026-04-06T17:09:20","slug":"larry-summers-new-chart-sounds-the-inflation-alarm","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/589502\/","title":{"rendered":"Larry Summers\u2019 new chart sounds the inflation alarm"},"content":{"rendered":"

Late last week I found myself wondering: What is Larry Summers thinking?<\/p>\n

Not about that!<\/p>\n

Rather, about the topic on which the economist, former treasury secretary and former Harvard president has been so irritatingly correct in recent years: the state of the American economy.<\/p>\n

He infuriated his own party in the Biden years by predicting in early 2021 that the $1.9 trillion American Rescue Plan would overheat the economy, and then by rejecting the Federal Reserve\u2019s insistence that inflation would be \u201ctransitory.\u201d Under President Donald Trump, he warned that DOGE wouldn\u2019t actually save money, and that tariffs could push toward stagflation.<\/p>\n

One of Summers\u2019 least-loved observations came in the summer of 2023, when he posted<\/a> a chart showing that the decline in inflation exactly tracked a similar dip in the mid-1970s \u2014\u00a0just before a second spike. Critics howled that the image constituted a \u201cchart crime,\u201d a random coincidence passing as a correlation. After all, that second spike had been driven by a specific historical event:\u00a0the Iranian revolution.<\/p>\n

But since then the chart has continued to track inflation\u2019s stubborn permanence. In a particularly strange historical echo, a US conflict with Iran has re-familiarized Americans who weren\u2019t buying gas in the \u201970s with the Strait of Hormuz.<\/p>\n

Summers has been keeping a low profile since he was defenestrated from Harvard over Jeffrey Epstein emails, and declined to give me an on-the-record interview.<\/p>\n

I did get a hold of an updated version the economist has been circulating of his 2023 chart, however, with a dotted line representing what he sees as the market-implied inflation forecast. It tracks the 1979 inflation spike.<\/p>\n

\"Chart\"Larry Summers<\/p>\n

Summers, I\u2019m told, has shared with associates his view that the American fiscal and economic situations would be worryingly fragile, and on the brink of a crisis, even without a war. And he believes many analysts are misreading the situation. For instance, the Fed is treating the neutral interest rate \u2014\u00a0the rate that balances full employment and manageable inflation \u2014\u00a0as 3%; the Trump appointee Stephen Miran has said it\u2019s at 2.5 to 2.75%. Summers thinks it\u2019s 4.5%.<\/p>\n

Summers isn\u2019t historically one of Washington\u2019s great deficit hawks, but he and other voices, like the deficit monitors at the Committee for a Responsible Federal Budget<\/a>, are growing increasingly alarmed at a series of factors that are making federal borrowing unsustainable.<\/p>\n

The US is a heavily indebted country whose populist policies, and growing hostility to tax enforcement, mean it can\u2019t effectively raise taxes to close its deficits. Global investors see this, and they\u2019re edging away from Treasury bonds. The failure of DOGE\u2019s ax-wielders to put a dent in spending shows the gap won\u2019t be fixed on that side of the ledger, either, and indeed, the country is scrambling to raise its national security spending.<\/p>\n

And against that backdrop, AI euphoria is driving a boom in public stock markets even as the giant new private lending systems are showing signs of strain.<\/p>\n

If these worries are justified, the Fed right now thinks it\u2019s tapping the breaks by keeping interest rates steady \u2014\u00a0but it is actually hitting the gas, and speeding the US toward another bad bout of inflation.<\/p>\n

There\u2019s an observation known as Dornbusch\u2019s Law, after a Summers collaborator: Financial crises take longer than you expect to arrive, but then happen faster than you thought possible. You never really find out that you\u2019re Liz Truss until it\u2019s too late.<\/p>\n

Correction: An earlier version of this article misstated Stephen Miran\u2019s assessment of the neutral interest rate.<\/p>\n","protected":false},"excerpt":{"rendered":"Late last week I found myself wondering: What is Larry Summers thinking? Not about that! Rather, about the…\n","protected":false},"author":2,"featured_media":589503,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":{"0":"post-589502","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-au","9":"tag-australia","10":"tag-business","11":"tag-economy"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/589502","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=589502"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/589502\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/589503"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=589502"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=589502"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=589502"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}