Financial Times/Martin Wolf/10-5-2022
“That then led to the toxic correlation, this being a tendency for bond yields to rise as the currency was declining. And that in turn was followed, given the situation of the British pension funds, with a cascading deleveraging that led prices to disconnect from fundamentals and led to the phenomenon of positive feedback, which is at the root of all financial crises. And so, you went from a stable though not particularly desirable situation to a catastrophic one within a matter of a few days.” – Larry Summers
USAGOLD note: The picture Summers paints in this interview is less than comforting. He says the problem is now one of “hydraulics” not economics. “It’s on the flows and who is moving in what direction.” He still believes the Fed needs to get very aggressive in the inflation fight or suffer long-term future consequences. “If the Fed were to heed the counsel of the diehards of ‘team transitory,’ he says, ‘whose conclusions remain constant but whose arguments constantly evolve, I think that would be a prescription for much higher interest rates and a sustained and very difficult stagflation that would have serious global consequences.” Thus far, the Fed has bought into team transitory’s arguments believing that the inflation rate has peaked and about to decline. We will know more on that score Thursday when the Labor Department releases the latest headline and core inflation numbers.
