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Crisis firefighters had better not book vacations, he says
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Japan’s bond holdings need watching, ex-Treasury chief says
Former Treasury Secretary Lawrence Summers likened the array of risks confronting the global economy to the pre-crisis summer of 2007, with the UK’s current troubles just one example of potential breakdowns.
“We’re living through a period of elevated risk,” Summers told Bloomberg Television’s “Wall Street Week” with David Westin. “In the same way that people became anxious in August of 2007, I think this is a moment when there should be increased anxiety.”
The summer of 2007 saw the first signs of strains over a collapsing US housing market, eventually morphing the following year into the worst financial crisis since the Great Depression.
Besides the UK, “I don’t think there’s any sign that I see — yet — of other markets being disorderly,” said Summers, a Havard University professor and paid contributor to Bloomberg Television. “But we know that when you have extreme volatility, that’s when these situations are more likely to arise.”
Among the dynamics behind the current fragility are substantial leverage, uncertainty about the economic policy outlook, unease about high rates of underlying inflation, volatility in commodities and geopolitical tensions tied to Russia’s Ukraine invasion and to China, Summers said.
Japan’s Investments
One particular area to monitor is the strains inherent in Japan’s policies right now, the former Treasury chief said.
On the one hand, Japan has been withdrawing liquidity from its markets, through its purchases of yen last week in an effort to support the exchange rate. But on the other hand, it’s injecting liquidity through the Bank of Japan’s continuing monetary easing.