(Bloomberg) -- Republican politicians are setting the US up for a “Liz Truss moment” by promoting policies that would widen fiscal deficits and weaken the dollar, former Treasury Secretary Lawrence Summers said.
“Republicans are talking all about deficit-increasing measures — whether it’s on the defense spending side or on the tax cutting side — with nothing really pointing toward any kind of control, and at the same time making it harder for the country to sell its debt by trashing the currency,” Summers said on Bloomberg Television’s Wall Street Week with David Westin.
“I think they are setting up the United States for a kind of ‘Liz Truss moment,’” Summers said, referring to the fiscal plan set forth in 2022 by the then-UK prime minister which sent financial markets haywire and led to her ouster after just 44 days in office.
Former President Donald Trump has signaled he would prefer a weaker dollar, criticizing depreciations of the Japanese yen and Chinese yuan in a recent Bloomberg Businessweek interview for their impact on American competitiveness. His vice presidential pick, Ohio Senator JD Vance, has also spoken out against the negative effects of a strong dollar.
“There is an underestimation in the political class generally, but a far more severe underestimation on the Republican side, of the fiscal policy risks in the current moment,” Summers said.
“Democrats are not as focused in this political year on the fiscal challenge as I suspect the new administration may have to be. But at least when fires are burning, they are not throwing gasoline, and that’s a very important distinction.”
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