Former US Treasury Secretary Lawrence Summers has warned that current market risks are strikingly similar to those before the 2008 financial crisis.
Summers warned that the global economy now faces a slew of risks comparable to the summer of 2007, with the current UK crisis just one example of a potential market collapse.
“We’re going through a period of heightened risk, like in August 2007 when people became anxious, and I think this is a time to be more anxious,” Summers said.
Looking back at history, red flags for the stability of the global financial system began to emerge in the summer of 2007, when the bankruptcy of large hedge funds and mounting losses on subprime mortgages became more apparent, which led to a complete freeze in the interbank foreign exchange market in August of that year. , which eventually turned into the worst financial crisis since the Great Depression (1929-1933) the following year.
Now over the past few weeks, inflation and interest rate policy have hit stocks, bonds and currencies, causing volatility to soar.Britain’s Treasury announced last week its most aggressive tax cut in nearly 50 yearsGBPThe exchange rate plummeted to a record low against the dollar, and British bond yields rose to a 20-year high.
Investment banks and fund managers recently warned British banks that margin calls could trigger a collapse in British debt, prompting the Bank of England (BOE) on Wednesday to make an emergency move to soothe markets, with the Bank of England launching an emergency plan to buy long-term bonds in case pension funds hold of complex financial instruments collapsed.
Summers believes that the current situation in the UK is in very complex and uncharted territory, and the Bank of England’s emergency bond-buying program is unsustainable.
“Those scenarios are more likely when you have extreme volatility, and when a big country like the UK is going through something like this, that could have consequences beyond expectations,” Summers warned.