“If institutions don’t focus on their inflation mandate, they will be making a very serious mistake,” former US Treasury Secretary Lawrence Summers says during an interview with David Westin on “Wall Street Week Daily.”
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Transcript
Time now for our Wall Street week daily segment with David Weston joining us right now with a very special guest David thank you so much Romaine yes we are joined by Larry Summers he of course is a special contributor to Wall Street week uh he’s a former U.S treasury
Secretary and now at Harvard so Larry thanks so much for coming back with us we talked it was only two days ago although it seems like a lot longer ago when we thought we were dealing with Silicon Valley Bank and a problem here in New York as well with signature but
Now it seems to have spread across the Atlantic now I know you do a bit of work with Michael Klein although not on the Credit Suisse deal but do we have a systemic problem that’s growing look Credit Suisse has had uh profound issues for a long time it had a whole
Set of uh reversals and so they’re probably an element of contagion in this but I think the larger part of it is just multiple problems coming together uh in a stream and that’s certainly a complex and difficult situation in many ways a much more complicated one than svb because Credit Suisse has complex
Global operations there are multiple jurisdictions of Regulation are that are involved in dealing with it so that’s clearly something that is going to require attention and I would assume that the regulatory authorities are in consultation with each other in consultation with management about the way forward with respect to
The Credit Suisse situation which certainly appears to have affected uh the valuations of major institutions uh globally and appears to be impacting significantly expectations of the future path of interest rate policy but do we have a financial stability problem at this point do you are you more concerned
About that today than you were 48 hours ago yes I think that uh as more and more uh companies are uh caught up uh in this the complexity and extent of the solutions that are required uh goes up look this is the kind of thing that the authorities have been planning for uh
Since 2008 that’s what orderly resolution and all of that is about that’s what capital that can be bailed in is about that’s what larger quantities of capital and liquidity requirements are about and in a sense we’re facing the first tests of the new regime and the new regime didn’t do so
Well with respect to svb in the sense that it was necessary to ad hoc a whole set of new Arrangements um on top of the new regime and we’re going to have to see uh what works out at uh credit uh at Credit Suisse Larry do you think it’s time to take a
Fundamental look at how we capitalize our banks not just the level of capital but how we capitalize them obviously we saw at svb and some other Banks some issues some of those long-term securities yeah I think there’s a whole set of questions in the banking industry about
How we treat uh the so-called direct treat longer duration uh assets what should the role of Market values be versus uh the price people paid for an asset that may have changed uh substantially uh in value I’m not sure we’re thinking about that right in our regulatory regime we’ve traditionally
Assumed that deposits were a fairly long-term asset of banks against a liability of banks against which they could hold a long-term asset well deposits are looking a lot less sticky today than they were looking uh two weeks ago and that’s going to require some fundamental uh rethinking as well
Larry we have obviously two central banks trying to deal with inflation the ECB that we will hear from tomorrow and the Federal Reserve will hear from next Wednesday do you think the central banks in Europe and in the United States are going to have the courage to say the
Course given how quickly this story is developing and perhaps more important should they have the courage to do that I hesitate to make any of these judgments in advance of when the institutions uh need to uh make their judgments I think if institutions don’t focus on their inflation mandate they
Will be making a very serious uh mistake and if they appear to be abandoning concern about inflation they will make a very serious mistake on the other hand I think there clearly is a disinflationary impulse coming here from the reductions that are likely in the flow of credit
And in a sense that means that monetary conditions have tightened without an increase in discount rates or federal funds rates or their European equivalent and so I think what central banks are going to have to judge is the scale of that disinflationary impulse and I’m not sure what the right
Way to come down is in the United States I would assume that 50 basis points for March is now off the table and I think it probably should be off the table but I would be concerned learned if the situation was judged such that they couldn’t do 25 basis points that that
Would be sending a very ominous kind of signal about how the Central Bank sees this situation Larry you’ve been in decision-making positions at the U.S treasury then at the White House actually in 2008-2009 crisis so you have a sense of how this works is it conceivable that Christian Lagarde and
Jay Powell are not even coordinating on this because it strikes me as very unusual if for example the ECP decided not to raise tomorrow doesn’t that preclude the fed from racing next week I don’t I don’t think the effects are that large I’m confident that the institutions are in touch uh with each
Other and are trying to make sure that they each understand how the other is moving of course they have to make their decisions ultimately with respect to their mandates which Focus primarily on their national uh economies Larry what about the possible effects and I’ll call it the real economy the
Ecosystem particularly when it comes to innovation in startups in the United States obviously this started really with Silicon Valley Bank to some extent and to what extent is this really going to affect the willingness to take risk to have Innovation to fund that Innovation because this has Ripple effects throughout the entire ecosystem
Particularly in California I don’t think this is going to be the biggest uh problem for uh the tech ecosystem yes there were many institutions that were close to Silicon Valley but we sort of learned a painful lesson about loyalty from the number of venture capitalists who urge their
Portfolio companies to pull their money out of Silicon Valley Bank as rapidly as possible we learned that whatever these great relationships that Silicon Valley Bank had were other Banks were not prepared to pay a lot to have the opportunity to take over those relationships I suspect that holding
Cash for payroll being prepared to make advances on money that’s coming in from your Venture capitalists I think these kinds of things things will get rewired before too terribly uh long and so I think the real issues for Silicon Valley are going to have more to do with the
Possibility that there may have been a bubble element in Tech valuations more to do with the consequences of the broader business cycle the consequences of higher real interest rates my greater concerns would actually be with the consequence of diminished credit creation broadly by Regional Banks and at a time when commercial real estate
Particularly Office Buildings is facing uh stress that the reduction in the willingness to provide uh credit both directly and to funds that are in the business of providing uh credit could have larger consequences that’s the discipline inflationary impulse I was referring to
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He is right
Larry’s name has endured all these years because of the person her is. He lays out all the facts here & does a masterful job of refusing to make projections. He knows this entire business model is built on confidence & he takes that very seriously.
Honestly, I'm unsure if investing is a wise move right now. Take note of how frequently things fail. As I still have some time before I retire, I'm still looking for a better strategy to invest my money despite reading charts and predictions from well-known investors from the past and present. In order to generate passive income, I want to build a solid and reliable portfolio.
At the time Yellen and all the other parrots in the Biden Administration were first "yellin" about inflation just being "transitory," … well, they we're trying to soften the edge of the knife. Inflation was "transitory" (or temporary, my word) in the sense that it was moving on (or HIGHER) at the time they spoke those words. And, in fact, HIGHER it did go (always under-reported, of course … to a 9.1% CPI)!!
One thing I have learned in more than 60 years of observance is that the national CPI (average) is always about 80% of some larger number, which will be more reflective as the true number throughout the country. So, for example, if inflation is reported at 6.0 by Washington people it is really 7.5%. (80% of 7.5 is 6.0). The Washington/bureaucrats reported number is ALWAYS lower than the true inflation number. It has to be the "reported" number b/c COLA's for senior citizens (one group for example) HAS to be kept lower so that payments for Social Security (and other groups who receive fed money/subsidies) stay as low as possible regarding money that will outflow from Treasury coffers.
So, back to the "reported" CPI of 9.1% as being the height of inflation. Nahhh, it was a fudged number! This is what Washington does! It was really CLOSER to 11.5! 80% of 11.5 is 9.2! So 9.1, 9.2 … you get the idea. I used 11.5 as being closer to the real number to simplify the math (for understanding purposes). Again, 80% of 11.5 is 9.2 (as close to the number of 9.1% CPI that the feds report).
So, inflation was "transitory" in the sense that it was "temporary," meaning that inflation was actually going HIGHER (which they didn't and couldn't tell you). Remember, figures can lie and liars can figure. This is what plays out in D.C. all the time. To politicians and cabinet figures "it makes good theatrics." To us in the real world … inflation is silent theft, it is the "cruelest and most evil TAX" that becomes the "daily wallet thief" (or money snatcher) of Americans everywhere! It surrounds everyone and the solution for "solving" inflation is propose and pass more legislation that makes the theft more obvious. That's when you have riots in the streets (France, right now! — 3/17/23), that's when you have people going hungrier, higher crime, more poverty, civil unrest, etc.) See where I am going here?? The solution to a problem in Washington is to make the problem worse, create suffering, and embolden the politicians.
It's a vicious circle. For at least 60 years our politicians have NOT served the public, "they have created a population of serfs!" And they will continue to do it until things REALLY break apart in the country. With the financial and banking scandals of the past 9 days now being exposed (coming into the sunshine) we are beginning to see the FIRST of the WORST to come. You ain't seen nothin' yet!!
Old man should go home and retire. These commentators are full of shit.
How I hate capitalism!
Jerome Powell's Arrogance has Screwed US Economy and US Dollar ROYALLY! China is the FUTURE! US Dollar (backed by nothing) is DEAD! Fed said SOFT LANDING = Bank Failures!!!? WHO can Trust Fed?
As a multi family property owner in Manhattan for a few decades, I made a ton of money in cash flow and the sale of the buildings in 2020. Having work experience in commercial real estate finance and an finance MBA, I saw the writing on the wall. I was really worried in 2019 , thinking my loans ( every 5 years) would go from 3% to 4%……I didn't want to be invested for less cash flow (for years), so I sold and reinvested.. in safer assets… my loans would have matured this year…. I could not even imagine what other building owners are going through right now… just the beginning.
All of these people suggesting this isn't a big deal are usually people close to these banks lol. Notice how none of them are putting their own money on the investment or deposits at each of these banks???? People need to stop listening to these hacks
My gut tells me we will have a “slow rolling crisis” (Fink) with several “air pockets” (Summers). Take it or leave it. I’m an armchair general way out of my depth just like every other Bloomberg commenter.
I'm not kidding when I say that the market crash and high inflation have me really stressed out and worried about retirement. I've been in the red for a while now and although people say these crisis has it perks, I'm losing my mind but I get it Investing is a long-term game, so focus on the long run.
Democrat politicians are giving $Billions to foreigners, $Billions to Ukraine, $Billions to rich Liberal donors.
They have intentionally created HUGE inflation.
Millions of Americans cannot afford the basics that are necessary for a normal life.
I hate this guy s voice summers and yellen too . Do all old Jewish people have this kinda annoying voice ?
Too bad Larry wasn't in power at some point to deal with inflation and government spending??? Credit Suisse hired a URM moron CEO, that's it.SVB was a virtue-signalling woke garbage ESG money laundering scheme.
What is wrong with Summers swishing his worshdshs?
Duplicitous shell game. Good luck hoomans
AGAIN ——– >. NOW BASED ON MORE THAN + 98.97% PROBABILITY THAT FED CANNOT ACHIEVE ITS PRICE STABILITY TARGET TO 2.0% BECAUSE OF US T – DEBT YIELDS COLLAPSING AGAIN AND AGAIN ——- > IT'S AN ENORMOUS TIME TO BUY GOLD THAT WILL BE IN THE RANGE OF 3K$ – 3.5K$ THIS YEAR!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!:)
S I'VE SAID MANY TIMES ALREADY THAT USA CHINA EUROPE + JAPAN HAVE TOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO DEBT TO GO FURTHER FROM HERE THAT AGAIN IT IS TOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO LATE TO FIX THE FINANCIAL ENGINEERING PROBLEMS FROM TOOOOOOOOOOOO0000000000000000000000000000000000000 MUCH DEBT (= BONDS)!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!:)
IN THE END ——– > CREDIT SUISSE IS GOING TO BANKRUPTCY + AS I'VE SAID MANY TIMES THAT MORE AND MORE PENSION FUNDS ARE GOING TO INSOLVENCY ESP IN EUROPE + CHINA + USA!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!:)
AGAIN ——— > GOLD IS KING!!!!!!!!!!!!!!!!!!!! CHECK THE US T – DEBT MARKET THAT IS SHOWING VERY VERY MATHEMATICALLY THAT ———- > NO MORE US$ IS THE BIGGEST RESERVE CURRENCY!!!!!!!!!!!!!!!!!!!!!!!!!!!!!:) AS I'VE SAID MANY TIMES ALREADY THAT GOLD PRICE WILL BE IN THE 10K$ – 15K$ IN COMING YEARS!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!:)
AGAIN AND AGAIN AS I'VE SAID MANY TIMES SINCE THE END OF JUNE OF 2022YR THAT NOW WHO DENIES THE FACT THAT ——- > S&P 500 INDEX IS GOING DOWN TO THE RANGE OF 3150 – 3350 THIS YEAR!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!:)
US FED HAS TO HIKE ANOTHER 100BP IN COMING MARCH 22ND IF THEY REALLY WANT TO QUELL THE STAGFLATION —— > HOWEVER THEY WILL NOT EVEN 25BP HIKING IS SHAKING THE FINANCIAL SYSTEM!!!!!!!!!!!!:) ——- > AGAIN IT'S A HUGE TIME TO BUY GOLD + ENERGY TO HEDGE AGAINST TOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO MUCH DEBT PROBLEMS!!!!!!!!!!!!!!!!!!!!!!:)
AGAIN AND AGAIN CHINA USA EUROPE HAVE TOOOOOOOOOOOOOOOOOOOOOOOOOOOOO MUCH DEBT TO GO FURTHER FROM HERE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!:) IT'S TIME TO STOP BUILDING MORE AND MORE AND MORE AND MORE AND MORE AND MORE DEBT!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!:) ——— > AGAIN IT'S TIME TO HIKE MORE AND MORE AND MORE AND MORE INTEREST RATES!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! OR THERE WILL BE MUCH MUCH MUCH MUCH MUCH MUCH MUCH MORE ECONOMIC DISASTERS COMING TO HIT THE ECONOMY!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!:)
FRANKLY ARE THESE JUST COINCIDENCE EVENTS???!!!!!!!:) ——— > RIGHT BEFORE JUST A DAY BEFORE RELEASE OF US JOB DATA MARCH 10TH ——- > SVB CRISIS HAPPENED ALL OF SUDDEN AND NOW RIGHT BEFORE THE ECB RATE HIKING DECISION ON MARCH 16TH TOMORROW < ——- NOW CS PROBLEM IS ALL OF SUDDEN HAPPENING!!!!!!!!!!!!!:) < ——- JUST COINCIDENCE? IN ANYWAY IF US FED + ECB HIKE JUST 25BP OR EVEN STOP THEIR RATE HIKING CYCLE THEN THERE WILL BE MUCH MUCH MUCH MUCH MORE SERIOUS PROBLEMS HURRICAING THEIR ECONOMIES AS I'VE WARNED OF TOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO MUCH DEBT IN THOSE ECONOMIES ESP USA CHINA EUROPE!!!!!!!!!!!!!!!!!!!!!!!!!!!!!:)
杂皮
one of the fathers of deregulation
😂
The prudent thing to do is for The Fed to pause, so everyone can catch their breath. If further hikes are necessary May is right around the corner. May The Force be with US.
Summers must make lots of $$$.
There is nothing unusual about even a 6 pct fed funds rate.We had that in 1994 and the economy boomed after that,and in spite of it.Inflation must be quashed.
the fed should raise interest rates by 50 basis points. 6 pct inflation when workers hardly get 3 pct annually in raises is an unacceptable situation. svb and credit suisse were badly managed. dodd-frank was rolled by by the far right. biden still did the right thing acting quickly and decisively.100s of thousands of silicon valley tech jobs were at risk because of fear and uncertainty on wall street and in the banking industry. innovation has to continue-through the chips act, inflation reduction act, insfrastructure bill and flow of venture capital. The US technology lead and fight against climate change were at risk.
Biggest impact on tech ecosystem will be reduction in venture debt.