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- Larry Summers warned that the US could face a crisis similar to the UK’s in late 2022.
- The former Treasury Secretary was referring to plans proposed by then-UK Prime Minister Liz Truss.
- Truss resigned after sweeping tax cut proposals spooked investors and sent bond prices soaring.
Larry Summers is worried about the economy and fears the US could be on a similar track to the problems the UK faced in late 2022.
“I would have said a ‘Liz Truss moment’ was very unlikely in the United States if you had asked me three months ago,” the former Treasury Secretary told BBC Radio 4’s “Today” program on Tuesday.
“Now I think we’re on a path towards having an episode like that. I think it will be very costly for our economy — and for the global economy.”
Truss resigned as UK Prime Minister in 2022 after just 44 days in office — the shortest tenure on record.
After becoming Prime Minister she and her finance minister proposed sweeping tax cuts to be funded by additional government borrowing. Those policies spooked financial markets, sent the cost of government bonds soaring, and triggered a revolt within her own party.
Summers also said the market turmoil in the US was starting to resemble what might be expected in an emerging market economy.
“It’s hard to know what the endpoint will be,” he said. “We’ve seen a phenomenon in the United States, it’s almost unprecedented in our financial history. We’re seeing the kind of response that happens in emerging markets when the world loses confidence in them.”
“Stocks go down, bonds go down, the currency goes down, gold starts to be hoarded, that’s the pattern we’re seeing in the United States.”
Stocks tumbled on Monday after President Donald Trump again criticized Federal Reserve Chair Jerome Powell for not cutting interest rates, labelling him a “major loser” and “Mr. Too Late.”
Futures have since climbed slightly, but 10-year Treasury yields have risen, and the US dollar index has weakened. Gold prices hit a new record of $3,500 an ounce on Tuesday, having soared more than 30% since the start of the year.
Earlier this month Summers said on X of Trump’s tariffs announcement: “Never before has an hour of Presidential rhetoric cost so many people so much. The best estimate of the loss from tariff policy is now closer to $30 trillion.”
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