Biden ally Larry Summers, a former treasury secretary, said $2,000 stimulus checks would be a 'serious mistake' that could overheat the economy

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  • Former US treasury secretary Larry Summers told Bloomberg on Friday that $2,000 stimulus checks for Americans would be a "pretty serious mistake."

  • Summers, who was reportedly an adviser to President-elect Joe Biden's campaign, said boosting consumer spending was the wrong route to economic recovery.

  • The checks could overheat the US economy, he told Bloomberg.

  • US President Donald Trump has so far refused to sign a pandemic relief bill containing $600 checks for Americans, saying the checks should be $2,000 instead. The Democrats support larger checks.

  • Visit Business Insider's homepage for more stories.

Larry Summers, the former US treasury secretary who has reportedly advised President-elect Joe Biden, thinks $2,000 stimulus checks would be a "pretty serious mistake" that could overheat the US economy.

Congress approved a $2.3 trillion funding package containing $600 checks for struggling Americans on Monday. On Thursday, US President Donald Trump called for $2,000 checks instead, and he has refused to sign the bill. Democrats support these larger checks, and House Speaker Nancy Pelosi plans to hold a vote on them Monday.

Summers, who was treasury secretary at the end of Bill Clinton's presidency and director of the National Economic Council at the start of Barack Obama's administration, told Bloomberg it'd be better to have stimulus than not - but that promoting consumer spending through individual checks was the wrong way to keep the economy moving.

He said he was "not even sure I'm so enthusiastic about the $600 checks," let alone $2,000 ones.

The bill "probably would pay out $200 billion to $250 billion a month for the next three months," Summers said.

"The level of compensation is running about $30 billion a month below what we would have expected it would. GDP is running about 70 billion a month below what we would have expected it would ... We have stimulus already, much more than filling out the hole," he said.

"And given that lots of the hole is not from the fact that people don't want to spend, but because they can't spend - they can't take a flight or go to a restaurant - I don't necessarily think that the priority should be on promoting consumer spending beyond where we are now," he said.

Handing $2,000 checks to Americans would be a "pretty serious mistake that would risk a temporary overheat," he added.

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Summers was advising the Biden campaign this year, Bloomberg reported, but will not take a role in the Biden administration.

Progressive groups in May urged Biden to drop Summers, criticizing the former treasury secretary's economic policy record.

Democrats appear united behind the idea of larger stimulus checks, and a Democratic attempt to advance them was blocked by House Republicans Thursday. Progressive Democrats, in particular, reacted positively to Trump saying the $600 checks were not enough.

"When you see the two extremes agreeing, you can almost be certain that something crazy is in the air," Summers said, adding that when Sen. Bernie Sanders and Trump are aligned, it's "time to run for cover."

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