No. of Recommendations: 4
Well, Summers' comments don't seem to have produced any panic in the Treasury market.

His advice seems to be for them to buy stocks. Kind of like "saving" Social Security by getting people to put money into stocks.

I think the real problem facing countries with huge trade surpluses and rapidly growing economies is a lack of good alternatives to US Treasuries. There are certainly needs at home to be addressed, but economies in India and China and maybe a few others are in considerable danger of overheating.

And, I never will understand the economics of "buy stocks" thing, any more than I understand the economic rationale for preferential treatment for stocks in this country. It's as if economists like Summers believe that buying stocks on the secondary market, which certainly does have the effect of increasing stock prices, causes company profits to go up. Providing working capital to companies that need working capital in principle causes long term company profits to go up (presuming they use the money wisely, which, as we saw during the late '90s, is not always the case), but right now most viable US companies, and many in the rest of the developed markets, are making huge profits and to investing the the bulk of the money in expansion and improvement (GM and Ford could do with money, but they aren't viable). Just buying stocks is not the same as providing working capital, and inflated P/E ratios is not going to make for good investments.

Summmers could have urged these countries to invest (provide genuine working capital) to home-grown companies with legitimate prospects for success, which makes a lot more sense to me than buying stocks, but again, these countries have to worry about growing too fast.

For all Summers' reputation for being brilliant, I think he's just another one of these pie-in-the-sky thinkers who doesn't do well with the real world.

Anyway, I doubt anyone will listen. If trade surplus money goes elsewhere than US Treasuries, driving up yields, it won't be because of Larry Summers.
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