Ex-Treasury Secretary Larry Summers Calls Trump Tariff Impact 'Our First Iatrogenic Financial Crisis,' Warns Of Likely Recession

President Donald Trump’s tariff policy will likely cause financial distress for the U.S., former Treasury Secretary Larry Summers said on Tuesday.

In an interview with Bloomberg, Summers attributed Tuesday’s market rebound to hopes that a large part of the policies will prove transitory and reversible.

The economist, however, said, “This does not reflect any kind of market endorsement of the approach that the president has followed.” 

On the contrary, it reflected a judgment that the president might recognize the reality that the markets and his advisers are telling him.

The S&P 500 Index, a measure of broader gauge, fell about 11% over three sessions before rebounding on Tuesday.

Summers also noted that the corporate CEOs across the country articulated the fact that the wholesale tariff policy is “simply bad” for economic performance.

He said the tariff policy is a hugely consequential policy and it is being improvised on a daily basis, resulting in a huge uncertainty.

The former federal official expects the market to remain volatile for some time to come. “But my judgment is that I'd be surprised if the bottom is yet in with respect to this phase and markets,” he said.

Summers also said a recession is more likely than not, and in the context of a recession, an  extra two million people will be unemployed. This, the economist said, does not bode well for the market.

“We're very likely in the context of a recession to see markets reach levels significantly below their current levels,” he said.

Summers also warned of the recession perking up the already bloated budgetary deficit, which will likely precipitate into a financial distress, impacting high-risk companies and high-risk countries.

He blamed Trump for the predicament.

“To borrow a word from the doctors, this is our first iatrogenic financial crisis,” Summers said.

“An iatrogenic illness is when you go into the hospital, and you catch an infection there,” he said. “It's when the people whose job it is to make things better are the active agents of making things worse.”

Summers said the crisis is induced by the words and deeds of Trump and his administration.

But the good news is that it could be resolved with words and deeds of President Trump by backing off these policy errors, he added.

Alternatively, if these policies are persisted with, Summers sees substantial volatility in markets, substantial recession risk, substantial damage to middle class families.

Read Next: Microsoft Reclaims Top Market Cap Crown From Apple, But BofA Snubs Stock In 'Best Ideas' List: Retail Remains Unmoved

For updates and corrections, email newsroom[at]stocktwits[dot]com.

Share

·

Add us on