Former Treasury Secretary Larry Summers joined hosts Stephanie Ruhle and David Westin on Bloomberg TV’s new flagship morning program, Bloomberg <GO>. He discussed the economy, the 2008 financial crisis, and Janet Yellen’s job performance as Federal Reserve Chair.

On what grade he would give Janet Yellen, Summers said: “I’d give her an incomplete because the term is not yet over. But she’s done, as I say, I’ve got great respect for Janet Yellen.”

On whether there should have been criminal prosecutions for the 2008 financial crisis, Summers said: “There clearly were a lot of outrageous things that happened. If there were people who could plausibly found guilty beyond a reasonable doubt, they should have been prosecuted, rather than their companies being prosecuted. Whether there were such people and prosecutors just didn’t pursue the case or whether in extremely complicated situations you know that something has gone badly wrong but you can’t prove somebody guilty beyond a reasonable doubt, that’s a question.”

Larry Summers

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WESTIN: No I want your honest answer. If you had been Chair of the Fed would you have done things differently than what’s been done?

SUMMERS: I’ve had a lot of admiration for what Janet Yellen has done and I think it’s very hard to try to second guess without seeing the same data flow and full context that the people do. I know at various moments when I’ve been in office there have been people who were out of office who’d been in office before who had all kinds of comments about what we were doing. And I just knew that if they knew all the things I knew, they’d be saying something different. And I took a vow that while I’d express my opinions on the issues of the day, I wasn’t going to second guess what office holders were doing.

But in all seriousness I’ve got great respect for Janet Yellen–


RUHLE: What grade would you give her?

SUMMERS: And the job that she’s doing.

RUHLE: You’d give her an A? You said I’m living on a campus–


RUHLE: I’m living on a college campus.

SUMMERS: I’ve got an answer for this one already. This kind of question comes all the time. I’d give her an incomplete because the term is not yet over. But she’s done, as I say, I’ve got great respect for Janet Yellen.

Full Transcript:

DAVID WESTIN: So now let’s turn to Larry Summers. Thanks for joining us. Let me start at what at least for me is the top. We’ve been reporting for weeks now on volatility in the markets. Pretty much across the board, equities, commodities, debt, everything else. It seems sometimes that there’s some volatility in the data as well.

I mean what is going on? There seems to be a global slowdown. You are a student of data. You watch all of these data. How bad is it from where you sit?

LAWRENCE SUMMERS: Nobody knows but I think the risks are to the downside. I think you look at the industrialized world and it was OK-ish for the last several years. But that was in part being propelled by emerging markets. And now you have emerging markets submerging.

You have China clearly slowing and China’s you know going through an adjustment. Even if they succeed, even if they do everything they want to do which is very much in question. They’re going to move from being an investment, capital goods, infrastructure-driven economy to being a consumer service-driven economy. That’s not going to be good for people selling products to China.

China put in place more concrete between 2011 and 2013 than the United States did in the twentieth century.

STEPHANIE RUHLE: One more time?

SUMMERS: China put in place more concrete between 2011 and 2013 than the United States did in the 20th century.

RUHLE: So what does that mean? What?

SUMMERS: That means they have invested hugely and they’ve got a really big backlog, an excess, an overhang–

WESTIN: They can’t keep up that pace.

SUMMERS: Of infrastructure. And that pace is coming down. And maybe they will serve each other a lot more restaurant meals. Maybe they will move to provide all kinds of urban amenities. But that’s not going to do the same thing for the world’s copper producers, or the world’s iron ore producers–


SUMMERS: Or even the world’s oil producers–

RUHLE: Then let’s–

SUMMERS: As what they used to do.

RUHLE: Then let’s take all of this data. Things were OK-ish. Now things are worse with the emerging markets. That’s going to affect the developed world. What does that mean for the Fed? What does that mean for this rate hike that the market is so focused on?

SUMMERS: Look I’ll leave it to others to predict what the Fed will do.

RUHLE: What should they do?

SUMMERS: I’ve been very clear. I think that there’s no reason to raise rates until you see the whites of inflation’s eyes. And I look at the data out there and I don’t see inflation as close to the horizon. You know I think there’s a lot to be said, it’s not the only thing to do, but there’s a lot to be said for looking at markets to gauge expectations.

And if you look at inflation expectations, by looking at the KIPS (PH), and looking at the other bonds and sort of working all that out. It’s basically saying that for the next 10 years, 10 years, inflation is going to be well below the Fed’s 2% target.

RUHLE: But Larry the markets are perverse if you look at the fact that they’re addicted to this Fed stimulus. We haven’t looked at the fundamental problems around the world because we’re addicted to this heroin drip.

SUMMERS: Well, some people would call it that. Other people would say it’s monetary policy that recognizes current reality. Current reality is very different than what we’ve had historically. There are a variety of reasons starting from more inequality, why people are more prone to save now. There are a variety of reasons starting from a slower population growth why firms do less investing than they used to.

Therefore normal interest rates in normal times are going to be much lower than they’ve been. And so levels of interest rates that have traditionally been very stimulative are going to be much less stimulative going forward.

MEGAN MURPHY: Let me jump in if I can.

RUHLE: Please.

MURPHY: Let me just in with a question. Do you have any concern though about what Janet Yellen has said about running the economy hot? And that by running it hot, by letting unemployment drift below historic norms, that we do run a risk that we’ll see an inflation blip and that the Fed will get behind when they need to put the hike in place?

SUMMERS: First I always have concerns. And it’s never right to dismiss any of these concerns if you want to form a prudent view. Second I work and live my professional life on a college campus. It’s Harvard where the kids are pretty fortunate. I see the kids leaving. It doesn’t feel like an overheating labor market to me. A

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