The US government will impose “substantial” tax increases on its citizens to try and fix its $1.4 trillion deficit, according to former Treasury Secretary Larry Summers.
In a new speech covered by Bloomberg, Summers says that out of control inflation and debt will force the US government to continue raising taxes and lean towards higher interest rates.
Summers says US debt is so massive that simply reducing spending won’t be enough to significantly address the problem, and higher taxes will become imperative.
“We have a challenge before us that is of a magnitude that is unprecedented in our own history…
The US will, over time in ways that are largely not recognized by the political process, be likely to require substantial increases in revenue.”
Summers says that past rate increases from the Federal Reserve have not brought the level of restraint on the economy that was originally expected of them.
Therefore, the economist says that more interest rate bumps, whether it’s 25 basis points at a time or 50, are probably on the horizon.
As for the future of the US dollar as the world’s reserve currency, Summers says he remains optimistic.
He believes the euro, the Japanese yen and the Chinese yuan have their own issues that will prevent them from seriously challenging USD’s dominance.
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