It’d be a “real mistake” to assume other countries won’t face the same kind of mayhem that UK markets grappled with, former Larry Summers said on Friday, cautioning investors of potential trouble in debt markets.
The former Treasury Secretary pointed to the recent fiasco in Britain, where concerns surrounding the UK’s growing debt balance and the proposal for unfunded tax cuts caused market turmoils, causing the pound to decline to 37-year lows, eventually leading to Liz Truss’s resignation as prime minister on Thursday.
“Things can change extraordinarily fast if you lose credibility,” Summers said in an interview with Bloomberg TV.
“If your deficit project starts to get out of control and your real interest rates start to rise rapidly, you can get into a kind of doom loop,” he added.
Summers also noted liquidity issues in the market which could eventually lead to a situation where there are more sellers than buyers.
He pointed to a recent comment from Treasury Secretary Janet Yellen, who brought up concerns of illiquidity in US Treasurys that has created more volatility and sudden spikes in yields.
