Larry Summers thinks a strong recovery is unlikely

The Fed is poised to withdraw QE following signs of recovery in the US economy. Larry Summers, writing in FT, thinks a return to full employment and strong growth is difficult without "unconventional policy support".

He gives four reasons:

First, even though financial repair had largely taken place four years ago, recovery has only kept up with population growth and normal productivity growth in the US, and has been worse elsewhere in the industrial world.

Second, manifestly unsustainable bubbles and loosening of credit standards during the middle of the past decade, along with very easy money, were sufficient to drive only moderate economic growth. Third, short-term interest rates are severely constrained by the zero lower bound: real rates may not be able to fall far enough to spur enough investment to lead to full employment.
Fourth, in such situations falling wages and prices or lower-than-expected are likely to worsen performance by encouraging consumers and investors to delay spending, and to redistribute income and wealth from high-spending debtors to low-spending creditors.

The Fed has said that a return to normal interest rates would be contingent on the unemployment rate falling to 6.5%. Summers argues that, at the interest rates that were earlier regarded as the norm, aggregate expenditure will be lower than before. Again, he provides a number of reasons:

Investment demand may have been reduced due to slower growth of the labour force and perhaps slower productivity growth. Consumption may be lower due to a sharp increase in the share of income held by the very wealthy and the rising share of income accruing to capital. Risk aversion has risen as a consequence of the crisis and as saving – by both states and consumers – has risen. The crisis increased the costs of financial intermediation and left major debt overhangs. Declines in the cost of durable goods, especially those associated with information technology, mean that the same level of saving purchases more capital every year. Lower inflation means any interest rate translates into a higher after-tax rate than it did when inflation rates were higher;

If Summers is right, it is bad news for emerging markets, including India. Export growth will not be strong given a weak global recovery. At the same time, tapering of QE means capital inflows to finance India's CAD may not be adquate.

Summers does not spell our what "unconventional policy support" he has in mind. Does he think QE should continue? And what measures would he want on the fiscal side given the difficulties President Obama has faced in dealing with the Republicans in Congress?