Stock Market Slide Cause For 'Serious Concern,' Not Panic, Former Treasury Secretary Says

Former Treasury Secretary Larry Summers says he's concerned about the stock market slide in recent days, but that it doesn't have much to do with the recent tax cuts, and that things could easily swing back up soon.

Summers (@LHSummers), president emeritus of Harvard University, joins Here & Now's Jeremy Hobson from Hong Kong.

On if it's appropriate to panic about the markets

"Panic is never a constructive response to any situation. And for the vast majority of investors who aren't professional, experience teaches that they're better off setting the overall portfolio strategy and sticking with it, and not trying to change their position in response to day-to-day market developments. So panic is definitely the wrong response. But serious concern is I think the right response."

"I had the gathering sense for some time that there was excessive complacency in the market, that too many people were assuming that the market was a one-way, upwards escalator."

Larry Summers, former U.S. treasury secretary

On whether the drop came as a surprise

"It surprised me in the last couple of days, of course — nobody wakes up expecting that, on a given day, the market's gonna fall 600 or 1,000 points. On the other hand, I had the gathering sense for some time that there was excessive complacency in the market, that too many people were assuming that the market was a one-way, upwards escalator."

On the volatility coming on the heels of the Republican tax bill's passage

"I think this is probably not heavily related to the Republican tax bill. I think the proposed tax bill was a mistake, I think we fired our fiscal cannon — in some sense before we needed it — of fiscal stimulus, and that may prove to be a costly error. I think that if an economy does turn down, if the markets stay down for a long time and stay down in a major way, that will obviously increase the risk of recession. But those issues at this point are somewhat premature. The right view for people to have now is of concern and a focus on restoring adequate growth. As you know, my feeling has been for quite some time that priority of the Fed has to be reattaining the 2 percent inflation target, and that that, rather than controlled to lower inflation, should be the major Fed priority."

On how he expects Federal Reserve Chairman Jerome Powell to respond

"I think he will want very much to stick with the scheduled March [interest rate] increase that the Fed has been telegraphing in its speeches for the last month or two. It could easily be that the markets will recover somewhat today, and cruise their way back upwards a little bit. This will look like a very normal market fluctuation, with a particularly dramatic moment. It's also possible that this will be seen as the beginning of a longer period of economic distress. It's hard to make a definite judgment."

On concern in Hong Kong watching markets in Asia

"I think there's very substantial concern, and I think the concern, frankly, is magnified by a sense that if a crisis were to come, the United States might not have quite the team in place that could deal effectively with a major crisis."