Former U.S. Treasury Secretary Larry Summers said global financial markets appear to be anticipating slow growth and low real interest rates for the next few years, which will gut the ability of central banks to guide economies.

“What markets are seeming to price is a return to secular stagnation, or Japanization,” Summers said in a lecture to the London School of Economics on Wednesday.

The remarks build on his view since 2013 that one of the chief problems in industrial nations is an excess of savings and lack of investment.

The result will limit the ability of policy makers to raise interest rates in the coming years and leave governments with the bulk of the responsibility for stabilizing their economies. The emeritus professor at Harvard University and former chief economist at the World Bank also warned that low borrowing costs will add to the risk of another financial crisis.

“Extremely low interest rates set the stage for leveraging and the perpetuation of zombie enterprises and the perpetuation of financial bubbles,” Summers, who is also a paid contributor to Bloomberg, said. “We’re seeing a lot of evidence of speculative risk. Extremely low and negative real interest rates are problematic.”

He also said:

  • “We’re likely to be in a world where the feasible range where interest rates can be varied will be much less than it used to be”
  • “It’s hard to believe that monetary policy is going to be an enormously powerful stabilization instrument going forward”
  • Even if central banks adopt digital currencies, it will be difficult to phase out traditional forms of cash
  • There’s a 50% chance of another Covid-like virus hitting in the next decade, and governments aren’t investing enough in getting people vaccinated or in potential treatments

This article was provided by Bloomberg News.