Former Treasury Secretary Larry Summers is sounding the alarm on America’s fiscal trajectory, placing the blame squarely on President Donald Trump and the GOP’s “One Big, Beautiful Bill.”
What Happened: During his appearance on the Politics War Room podcast on Thursday, Summers criticized the lack of fiscal discipline in current Republican proposals, warning that the United States is on the verge of a crisis if current debt trends continue.
“We are not paying attention to the first law of holes. Stop digging,” Summers said, referring to the $36.9 trillion U.S. National Debt, and $1.83 trillion fiscal deficit.
He believes that the country is not on a sustainable path right now, and adds that the “Big, Beautiful Bill” is actually a prescription for “deadly, dangerous decline.”
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Summers, who served as the Treasury Secretary under President Bill Clinton and as the Director of the National Economic Council under President Barack Obama, notes that the U.S. debt-to-income ratio is now three times higher than it was in 1993, when Clinton took office.
He cautioned that the fiscal outlook is even more dire than it was during the 2010 Simpson-Bowles deficit commission, when long-term budget reform was a bipartisan concern.
“The world’s greatest debtor will not forever be the world’s greatest power,” he says, adding that the U.S. is increasingly dependent on China to finance its deficits, something that he feels is “massively dangerous.”
This prompted his criticism of Trump’s calls to slash Internal Revenue Service enforcement, relying on tariffs instead, which Summers refers to as a regressive tax to raise revenue. “Is it really a good idea to push the price of a new car up by $4,000?” he asks, while warning that these policies stand to hurt consumers.
Summers concludes by drawing parallels between the current U.S. fiscal trajectory and that of the U.K. in 2022, calling it a setup for a “Liz Truss moment.”
Here, he is referring to the short, chaotic reign of the former British Prime Minister, whose tenure came to an end following turmoil in the bond markets, triggered by similar unfunded tax cuts and fiscal missteps.
Why It Matters: Summers has referenced the “Liz Truss” moment for America several times in recent weeks, while criticizing the Republican-backed “One Big, Beautiful Bill.”
“I would have said a ‘Liz Truss moment’ was very unlikely in the U.S. if you had asked me three months ago,” Summers said during a BBC Radio interview over a month ago, “now I think we’re on a path towards having an episode like that,” he adds.
Macro analyst and founder of The Bear Traps Report, Lawrence McDonald, referred to the bill being passed by the Republican-controlled House as “smoking in the dynamite shed,” underscoring the major implications of rates being higher for longer, such as the billions in unrealized losses now facing Japan’s top insurance companies.
Even Trump ally Elon Musk has criticized the bill, saying that the legislation “undermines the work” that the Department of Government Efficiency (DOGE) has been doing under his leadership.
The Director of the National Economic Council, Kevin Hassett, however, claimed that the bill helps avert a recession, and a loss of revenue for the government.
Price Action: U.S. 10-Year Treasury yields stand at 4.42%, with the 20-Year and 30-Year notes yielding 4.92% and 4.90%, respectively, at the time of writing.
Photo Courtesy: wedmoments.stock on Shutterstock.com
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