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Obama's top adviser: US economy back from abyss

(Xinhua)
Updated: 2009-07-19 10:57

WASHINGTON: US President Barack Obama's top economic adviser said on Friday that the country's economy has been rescued from the brink of collapse, but fixing the economy is still the administration's priority.

"We were at the brink of catastrophe at the beginning of the year but we have walked some substantial distance back from the abyss," Lawrence Summers, director of the White House's National Economic Council, said in a speech at the Peterson Institute for International Economics.

Lawrence H. Summers, Obama's top economic adviser and director of the White House's National Economic Council, delivers a speech in Washington, capital of the United States, July 17, 2009. [Xinhua]

He noted that the Obama administration inherited a situation that was qualitatively similar to "the crisis in Japan after its asset bubble collapse, the early stages of the Great Depression, or other major domestic financial crises."

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To address the deep and severe crisis, US President Obama started from two main premises.

"First, the most immediate priority was to rescue the economy by restoring confidence and breaking the vicious cycle of economic contraction and financial failure," he said.

"Second, the recovery from this crisis would be built not on the flimsy foundation of asset bubbles but on the firm foundation of productive investment and long-term growth," he added.

"Substantial progress has been made in rescuing the economy from the risk of economic collapse that looked all too real 6 months ago," Summers stressed.

While employment continues to contract, the available indicators suggest that the US GDP "is on close to a level path with prospects for positive growth to commence during this year," he said.

Factors supporting growth include the growing impact of both fiscal stimulus and measures to support the financial system, the wealth effects of stronger asset markets, inventory replenishment, and the replacement cycle for automobiles and other consumer durables.

But Summers also warned that it is too early to say that the US economy has walked out of the recession.

"Experience during the US Depression and in Japan during the 1990s teaches the danger of premature declarations of victory and withdrawals of stimulative policy," he said,.

"It is essential that stimulative policies be sustained for as long as necessary but also that they be sustained no longer than necessary," he added.

Summers stressed that the US must make comprehensive reforms to lay a foundation for future prosperity.

"The rebuilt American economy must be more export-oriented and less consumption-oriented, more environmentally oriented and less fossil-energy-oriented, more bio- and software-engineering-oriented and less financial-engineering-oriented," he said.

The economy must be also more middle-class-oriented and less oriented to income growth that disproportionately favors a very small share of the population.

"The President has an ambitious agenda," said Summers. "But it is an agenda comprised of measures that lay a foundation for future prosperity and for the confidence on which the current recovery depends."

"Recovery will take time and history suggests that there will be setbacks along the way. Yet the pervasive sense of fear of 6 months ago has receded as strong rescue measures have taken hold," he said.

Meanwhile, Summers dismissed concerns about the huge US budget deficit, which passed the 1 trillion dollar mark in June.

"The greatest risk to future US deficits would be uncontrolled economic contraction in the United States," he said.

"Containing this downturn and preventing the kind of debt dynamics you saw in Japan or you saw during the Depression in the United States has to be the first priority of anyone concerned with national credit worthiness or any intellectually honest deficit hawk," he added.