Advice to Invest Less in U.S. Bonds; Foreigners Can Do Better, Summers Says
A former U.S. Treasury secretary is advising some of the world's biggest holders of U.S. Treasury bonds that they ought to find much better ways to invest their money.</br></br>Lawrence H. Summers, who headed the Treasury in the last 18 months of the Clinton administration, has argued in recent speeches that developing countries in Asia, Eastern Europe, Latin America and Africa should put much of their excess funds into stocks. Too often, he contends, the central banks of those countries invest their hoards of foreign securities -- now totaling several trillion dollars -- in safe but low-yielding U.S. Treasurys.</br></br>The return "will be zero" on those Treasurys after inflation and currency changes are factored in, Summers said in a lecture last week at the Center for Global Development, a Washington think tank. Meanwhile, he said, the developing countries are passing up much more lucrative investments -- "this, in societies where hundreds of millions of people are still desperately poor." In another speech, this one in Bombay a few weeks ago, he said, "It is striking to estimate the cost to developing countries" of their Treasury- heavy portfolios.</br></br>Given Summers's previous job as the official with chief responsibility for financing the U.S. government, there is an obvious paradox in his suggesting that any central bank disinvest in U.S. securities. In a telephone interview yesterday, he said he saw no incongruity in his position, because he is not urging wholesale dumping. He said central banks around the world must keep "large volumes" of their money in super-safe assets such as Treasury bills. And "any diversification" into riskier investments such as stocks "is not likely to be rapid, in ways that would affect" the Treasury's ability to borrow at affordable interest rates, he said.</br></br>Summers, who announced in February that he will step down as president of Harvard University, is known for his impolitic remarks -- a famous example being his suggestion that "intrinsic aptitude" could explain why fewer women than men have excelled in science and math. So his argument against Treasurys might seem to be just another case of his penchant for flippancy.