Former Treasury Secretary Larry Summers is sounding the alarm about the state of the U.S. economy, warning that a crisis similar to the one triggered by former UK Prime Minister Liz Truss in 2022 could soon unfold in the United States.
Speaking in an interview with BBC Radio 4, Summers noted that what once seemed like a remote possibility is now becoming more plausible due to a combination of erratic fiscal rhetoric, market dysfunction, and investor dislocation. For wealth advisors and RIAs managing portfolios in a rapidly shifting environment, his comments underscore rising systemic risks that can no longer be ignored.
Summers referenced the infamous economic collapse in the UK under Truss’s leadership, which was precipitated by an aggressive proposal to implement large-scale tax cuts funded entirely by debt. The announcement, made without adequate coordination with the Bank of England or a corresponding fiscal framework, triggered a swift backlash from bond markets.
Yields surged, the British pound plummeted, and the UK’s borrowing costs spiked, forcing the Bank of England to intervene and prompting Truss to resign just 44 days into her term—the shortest in British history.
Until recently, a repeat of that kind of market-driven political implosion seemed unthinkable in the U.S., Summers said. But his tone has changed. “I would have said a Liz Truss moment was very unlikely in the United States if you had asked me three months ago,” he told the BBC. “Now I think we’re on a path toward having an episode like that. I think it will be very costly for our economy — and for the global economy.”
The prospect of a Truss-style crisis in the U.S. comes as investors digest a series of policy missteps and inflammatory rhetoric out of Washington. Among the most destabilizing, Summers argued, are recent tariff proposals from former President Donald Trump, which the former Treasury Secretary believes could impose enormous costs on the U.S. and global economies.
Earlier this month, Summers posted on X, formerly known as Twitter: “Never before has an hour of Presidential rhetoric cost so many people so much. The best estimate of the loss from tariff policy is now closer to $30 trillion.” The figure references lost GDP potential, suppressed investment, and long-term dislocation from global supply chains.
Markets are already showing signs of strain. On Monday, equities fell sharply after Trump again publicly attacked Federal Reserve Chair Jerome Powell, referring to him as “a major loser” and “Mr. Too Late” for his caution in cutting interest rates. The sell-off reflected growing investor anxiety about political interference in monetary policy and the prospect of a return to inflationary fiscal measures.
Though U.S. equity futures recovered modestly in subsequent trading sessions, underlying signals remain troubling. Treasury yields on 10-year notes have moved higher—typically a sign of either rising inflation expectations or greater perceived credit risk. Meanwhile, the U.S. dollar index weakened significantly, pointing to investor concerns over the long-term strength of the currency.
Perhaps most tellingly, gold prices surged to an all-time high of $3,500 an ounce on Tuesday, representing a gain of over 30% year to date. That kind of rally in gold is typically associated with flight-to-safety behavior, the kind more often seen in economies grappling with structural instability or political dysfunction.
Summers’s broader concern is that the U.S. is beginning to resemble an emerging market under duress. “We’ve seen a phenomenon in the United States—it’s almost unprecedented in our financial history,” he said. “We’re seeing the kind of response that happens in emerging markets when the world loses confidence in them. Stocks go down, bonds go down, the currency goes down, gold starts to be hoarded — that’s the pattern we’re seeing in the United States.”
For wealth managers, these developments represent a critical inflection point. On the one hand, elevated gold prices and a weakening dollar may provide short-term opportunities to reallocate toward inflation hedges or international diversification.
On the other, they signal deteriorating confidence in U.S. fiscal and monetary stability. Clients—particularly high-net-worth individuals and family offices—may now be facing an environment in which standard asset allocation models no longer offer the same protection or reliability.
Moreover, the increasingly combative rhetoric around Federal Reserve independence raises additional red flags for institutional and retail investors alike. Should monetary policy become overtly politicized, the Federal Reserve’s ability to respond to inflation or economic downturns could be severely compromised. The consequence would be a prolonged period of economic uncertainty, elevated volatility, and potential capital flight.
Summers’s commentary may also foreshadow broader global ramifications. The U.S. remains the anchor of the global financial system. Treasury securities serve as the world’s primary reserve asset, and the dollar facilitates the majority of international trade and capital flows.
If foreign governments and institutional investors begin to reassess their exposure to U.S. sovereign risk or the dollar itself, the knock-on effects could ripple through global bond markets, currency pairs, and commodity pricing.
Already, there are signs that foreign investors are exercising more caution. Recent Treasury auctions have shown weaker demand from overseas buyers, especially from traditional purchasers like Japan and China. At the same time, central banks across emerging markets are ramping up their purchases of gold and other non-dollar reserves, an implicit hedge against a more disorderly global monetary regime.
For RIAs and family office advisors, it is essential to engage clients in a proactive re-evaluation of risk assumptions. Long-held correlations—such as the inverse relationship between stocks and bonds—have shown signs of breaking down.
In past cycles, equity weakness was often offset by bond strength as investors rotated toward fixed income. Today, simultaneous drawdowns in both asset classes suggest a more systemic re-rating of U.S. economic leadership.
The growing divergence between physical asset prices and financial asset performance also deserves attention. Real assets, including gold, infrastructure, and select commodities, are outperforming in a manner that reflects defensive capital positioning. Inflation-protected securities and floating-rate instruments may offer partial insulation but require careful duration management.
Meanwhile, exposure to domestic small-cap equities and highly leveraged corporate credit could become a liability if policy volatility continues to increase.
Summers’s comments also raise critical questions about how RIAs should help clients prepare for potentially destabilizing fiscal proposals should they become enacted under a new administration. The experience in the UK under Liz Truss serves as a cautionary tale.
Aggressive fiscal policy with little market coordination or institutional backing can backfire spectacularly. In the U.S., with debt-to-GDP ratios already elevated and demographic headwinds mounting, any misstep in fiscal credibility could be met with rapid market repricing and policy tightening from the bond market itself.
This isn’t just theoretical risk management. Advisors must now consider how to build resilience into portfolios in a world where U.S. sovereign risk, once unthinkable, is now an open conversation. Currency hedging strategies, greater allocation to short-duration instruments, and tilts toward global income-generating assets may all become more prominent components of client discussions.
At the same time, it will be critical to ensure clients do not overreact to market volatility or political rhetoric. Emotional decision-making during periods of turbulence can be as dangerous as complacency. Advisors must strike a balance between being tactically responsive and strategically disciplined—particularly when helping clients align portfolio decisions with long-term objectives.
As Summers put it, “It’s hard to know what the endpoint will be.” But for wealth advisors and RIAs, the path forward is becoming clearer: stress-testing assumptions, protecting against tail risk, and preparing clients for a broader range of macroeconomic scenarios is no longer optional. It’s a fiduciary imperative.
