November 27
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Former finance minister Lawrence Summers criticized British Prime Minister Liz Truss' economic policies, saying they create conditions for the pound to fall below parity with the U.S. dollar, Bloomberg reports.

“It makes me very sorry to say, but I think the UK is behaving a bit like an emerging market turning itself into a submerging market,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin. “Between Brexit, how far the Bank of England got behind the curve and now these fiscal policies, I think Britain will be remembered for having pursuing the worst macroeconomic policies of any major country in a long time.” 

The Truss government crafted the most radical tax relief package for Britain since 1972, cutting levies on both workers' wages and companies to boost the long-term potential of the economy. Economists are worried that the package will cause a currency crisis because of concerns about rising debt.

The pound on Friday fell to its lowest level since 1985, trading at $1.0908 as of 3:52 p.m.

“It would not surprise me if the pound eventually gets below a dollar, if the current path is maintained,” said Summers, a Harvard University professor and paid contributor to Bloomberg Television. “This is simply not a moment for the kind of naïve, wishful thinking, supply-side economics that is being pursued in Britain.”

The former Treasury chief also noted the dangers of a rising dollar, which adds to inflationary pressures in countries around the world and pressure on foreign borrowers who have issued debt in U.S. currency. He also pointed out that the strengthening dollar, caused by the Federal Reserve moving to a more aggressive path of raising interest rates, could continue.

“This is going to be an issue that is going to be with us for some time,” Summers said. “Countries are going to have to be adjusting to a very strong US dollar,” and it will complicate macroeconomic management in may economies, he said.

According to Summers, Japan's turning to intervention to support the yen, which is heading for its biggest annual decline against the dollar in recorded history, is the wrong approach.

“When you’re intervening against the trend, when you’re intervening against the direction of monetary policy -- which is certainly the case in Japan -- your intervention is as likely to create opportunities for speculators as it is to really be effective in changing the path of currencies,” he said.

Summers suggested that tighter U.S. fiscal policy could help by reducing the burden currently placed on the Fed to fight domestic inflation.

If Washington paid more attention to fiscal policy and less to monetary policy, it would create a policy climate with somewhat lower interest rates and probably wouldn't mean as much pressure on the dollar.

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