Stimulus Update: This Former Treasury Secretary's Recession Warning Could Mean More Stimulus Checks Come Soon

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  • Former Treasury Secretary Larry Summers has warned that a recession is likely.
  • Past recessions have resulted in stimulus checks.
  • Lawmakers could be prompted to act by an economic downturn.

A fourth stimulus check could be a possibility -- but it wouldn't be a good thing.

Things are not looking good for the U.S. economy -- especially if you listen to former Treasury Secretary Larry Summers.

Summers was the Secretary of the Treasury under President Clinton, and also served as president of Harvard University. In recent days, he warned on CNN's The Situation Room that an economic downturn is on the way soon.

"I think it's more likely than not that sometime in the next year or 18 months we will have a recession," Summers said. "I think that's a consequence of the excesses that the economy has been through, and historical experience suggests that the kind of inflation we have rarely returns to normal levels, to target levels of around 2% without some kind of recession."

This was not the first time Summers has issued this warning, as he also spoke about a possible recession in September, telling Bloomberg News that "we are almost certainly going to see a downturn in the economy."

If Summers is right, this could be the catalyst that finally causes lawmakers in Washington to move forward with a fourth stimulus check.

Could a coming recession mean stimulus payments will be authorized?

A recession is an economic downturn that occurs when there are two back-to-back quarters of economic contraction. If the country's gross domestic product falls for two quarters in a row and there are other troubling economic indicators such as high rates of unemployment, then the country will officially be in a recession.

If that occurs soon, as Summers predicts it will, then lawmakers may turn to a tried-and-true playbook for dealing with economic contraction: Stimulus checks.

These direct payments into people's bank accounts were not just issued as a response to the COVID-19 pandemic and the resulting economic chaos. They have been sent out in past recessions as well. For example, during the Great Recession lasting from 2007 to 2009, Americans received payments.

Sending money into individual bank accounts is a repeated response to a recession because it can work very well to increase demand and get the economy moving again. Since lawmakers have done it before, it could very well happen again when a recession is officially declared.

Don't count on this cash to be recession-ready

While there's historical precedent for lawmakers responding to recession with stimulus money, this doesn't mean another check is guaranteed.

A lot depends on the makeup of Congress when a recession happens. If Democrats remain in control of Congress and even expand their majority, another payment becomes more likely. But if Republicans take either the House or the Senate, it is possible they could block an additional relief payment.

To make sure you're ready for a recession whether another payment comes or not, it's a good idea to start working on bulking up your emergency fund and getting your financial life in as good a shape as possible. By making sure your own finances are recession ready, you can weather the coming storm Summers is predicting.

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