Larry Summers, a former top economic adviser to President Obama, warned on Wednesday that the U.S. could well double-dip into another recession if "nothing new is done to raise demand and spur growth" in coming months.
Summers, currently a professor at Harvard's Kennedy School of Government, wrote in an op-ed for the Washington Post that the American economy was "effectively at a stall" and that the economy faced a one-in-three chance of double-dipping into another recession.
"With growth at less than 1 percent in the first half of this year, the economy is effectively at a stall and facing the prospects of shocks from a European financial crisis that is decidedly not under control, spikes in oil prices and declines in business and household confidence," he wrote. "The indicators suggest that the economy has at least a 1-in-3 chance of falling back into recession if nothing new is done to raise demand and spur growth."
Summers, writing in reaction to the recent passage of a bill to raise the U.S. debt ceiling, noted that America's relief at the deal would soon "give way to alarm" about the country's economic future if strong actions meant to spur growth and create jobs were not taken. In that vein, he urged for the extension of the payroll tax cuts beyond the end of 2012 and argued that Mr. Obama should make clear his refusal to extend the Bush tax cuts for wealthy Americans "on any terms."
"The single largest and easiest method of deficit reduction available is the non-extension of the Bush tax cuts for upper incomes," Summers wrote. "President Obama should make clear that he will not accept their extension on any terms."
"Clarity on that trillion-dollar point, along with very modest entitlement reform, will be sufficient to hit current targets for deficit reduction," he continued. "There is still time to confirm Churchill's maxim that the United States always does the right thing after exhausting all the alternatives."
Despite lawmakers' collective relief over Tuesday's last-minute deal to increase the debt ceiling through the end of 2012, Sen. Minority Leader Mitch McConnell, R-Ky., said recently that the contentious, prolonged debate over the matter was likely a "new template" for how such proceedings would occur in the future.
In an interview on CNBC, McConnell argued that from now on, it would be nearly impossible to get a clean vote on raising the debt limit.
"What we have done, Larry, also is set a new template," he told CNBC's Larry Kudlow. "In the future, any president, this one or another one, when they request us to raise the debt ceiling, it will not be clean anymore."
"This is just the first step," he added. "This, we anticipate, will take us into 2013. Whoever the new president is, is probably going to be asking us to raise the debt ceiling again. Then we will go through the process again and see what we can continue to achieve in connection with these debt ceiling requests of presidents to get our financial house in order."