Huffpost Business

Summers: Unemployment Will Remain "Unacceptably High"

Posted: Updated:

WASHINGTON — A top economic adviser to President Barack Obama on Friday acknowledged the risks of reining in too quickly the emergency programs put in place to battle the financial crisis.

"We will not make the mistake of prematurely declaring victory or prematurely withdrawing public support for the flow of credit," said Lawrence Summers, director of the White House National Economic Council.

Summers added that he wanted to avoid the mistakes Japan made in the 1990s and the United States in the late 1930s by pulling the plug on government support too soon.

Such a mistake "we must not make today," he said in a session with reporters.

Doing so could short-circuit an economic recovery, freeze up lending, spook financial markets and send interest rates higher.

The economy has been flashing signs of a recovery, and lending has improved some. But the financial system and the economy remain far from normal.

Unemployment, now at a 26-year high of 9.7 percent, is "unacceptably high" and will remain so for "a number of years," Summers conceded. In addition, he noted, the commercial real-estate market is under pressure, and small businesses are having trouble tapping credit.

Still, amid evidence that the worst recession since the Great Depression is ending, the government is winding down some programs.

Treasury Secretary Timothy Geithner on Thursday said a department program to bolster money market mutual funds will close as scheduled Sept. 18. In June, the Federal Reserve said it would let a separate money market mutual fund program expire Oct. 30. It also scaled back some loans to banks.

Last month, the Fed said it would stop buying government bonds in October. That program had been aimed at driving down rates on mortgages and other consumer debt.

The Federal Deposit Insurance Corp., meanwhile, is considering whether to stop making new guarantees for bank debt at the end of October, as now scheduled, or extend the program.

Summers said the government's first steps toward withdrawing its emergency support show the financial system is strengthening.

President Barack Obama, in a speech set for Monday, will make a fresh pitch for Congress to overhaul financial rules to better guard against future crises.

The push comes a year after Lehman Brothers collapsed, sending financial markets around the world into chaos and nearly halting the flow of loans to investors, businesses and ordinary people.

Efforts to revamp financial rules have bogged down in Congress. White House spokesman Robert Gibbs said Obama's speech Monday will focus on "the need to take the next series of steps in financial regulatory reform."

Summers indicated that the administration is open to negotiation in overhauling regulations but refrained from offering details.