DAVOS-Strong US Q4 growth no reason to pop champagne-Summers

By Krista Hughes and Natsuko Waki

DAVOS, Switzerland, Jan 29 (BestGrowthStock) – An acceleration in
U.S. economic growth at the end of last year is good news but no
reason to break out the champagne given high unemployment, a top
White House economic advisor said on Friday.

The U.S. economy grew at a faster-than-expected 5.7 percent
pace in the fourth quarter, the quickest in more than six years,
as businesses made less-aggressive cuts to inventories and
stepped up spending. [ID:nN28246399]

The robust performance closed out a year in which the
economy contracted 2.4 percent, the biggest decline since 1946.

“It confirms what we have recognised. It created a basis for
economic growth. It certainly doesn’t suggest we are in any
position to pop champagne corks,” Larry Summers, director of the
White House National Economic Council, told the World Economic
Forum in Davos.

“We have a profoundly serious problem of unemployment and
slow growth in middle income (families). We need to do a lot
more. First comes GDP growth, then comes the number of hours
people work, then comes the level of employment, then comes the
level of unemployment. We have a long way to go.”

He urged financial institutions to stop taking excessive
risks and leverage and said regulators must close loopholes and
arbitrage opportunities to prevent another crisis.

“At the centre of regulation are some clear imperatives. It
has to be basic protection for consumers, there’s got to be a
system where we recognise we can’t have a fail-safe system.
There has to be an end to loopholes and regulatory arbitrages,”
he said.

“There have to be rules that constrain the amount of risk
that large financial institutions take … Banks should not be
taking advantage of leverage … simply in order to trade back
and forth. Trading is a crucial part of a modern financial
system but it doesn’t need to be supported by governments,
guarantees provided by governments.”

Banks, which were bailed out by governments, should focus on
fulfilling their obligations to their stakeholders — customers,
Summers added.

“They need to think very carefully about their obligations
to their customers. The system was brought to the brink of a
collapse by reckless lending standards. In that context there’s
obligations on the part of those who benefited from governments
involvement to carefully consider their obligations.”

Asked about the dollar’s role as a reserve currency, Summers
said: “Reserve currencies are chosen by the market. I believe
the dollar has a very central role in the international
financial system for a long time to come.”

Stock Investing

(Editing by Mike Peacock)

DAVOS-Strong US Q4 growth no reason to pop champagne-Summers