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Title: The world is defenceless against the next financial crisis, warns BIS
Source:
BIS
URL Source: https://www.bis.org/publ/arpdf/ar2015e1.pdf
Published: Jun 28, 2015
Author: commentary
Post Date: 2015-06-28 16:29:15 by buckeroo
Keywords: None
Views: 1409
Comments: 8
The so-called central bank of central banks launched a scatching critique of global monetary policy in its annual report. The BIS claimed that central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies. These low interest rates have in turn fuelled economic booms, encouraging excessive risk taking. Booms have then turned to busts, which policymakers have responded to with even lower rates. Claudio Borio, head of the organisation’s monetary and economic department, said: “Persistent exceptionally low rates reflect the central banks’ and market participants’ response to the unusually weak post-crisis recovery as they fumble in the dark in search of new certainties.” G3 real interest rates have never been so low for so long “Rather than just reflecting the current weakness, they may in part have contributed to it by fuelling costly financial booms and busts and delaying adjustment. The result is too much debt, too little growth and too low interest rates. "In short, low rates beget lower rates." The BIS warned that interest rates have now been so low for so long that central banks are unequipped to fight the next crises. “In some jurisdictions, monetary policy is already testing its outer limits, to the point of stretching the boundaries of the unthinkable,” the BIS said. Policymakers in the eurozone, Denmark, Sweden and Switzerland have taken their interest rates below zero in an attempt to support their economies, contributing to a decline in bond yields. The decline of bond yields into negative territory is the "most unusual development" of the last year Extraordinarily low interest rates are not a “new equilibrium” said Jaime Caruana, general manager of the BIS, rejecting the theory of so-called “secular stagnation” which some economists blame for the continued decline in global lending rates. “True, there may be secular forces that put downward pressure on equilibrium interest rates … [but] we argue that the current configuration of very low rates is neither inevitable, nor does it represent a new equilibrium,” he said. Mr Caruana said that interest rate hikes “should be welcomed”, as global economies have started to grow at close to their historical averages, and a slump in oil prices has provided the global economy with a boost. • Fed primed to raise rates as the US engine roars back into life • Pay growth surge could force Bank of England to raise interest rates The BIS report described the threat of a new bust in advanced economies as a “main risk”, with many reaching the top of the economic cycle. The economies worst hit by the last crisis are now suffering the costs of persistent ultra-low rates, the organisation said, which could “inflict serious damage on the financial system”, sapping banks and weakening their balance sheets and their ability to lend. And the continued misallocation of resources during busts prompted by central banks’s rock-bottom interest rates has also hammered productivity growth, the BIS said, as a prolonged reliance on debt had been used in its place. Economic mismanagement has hampered productivity growth This problem is compounded as the world’s populations continue to age, the organisation warned, making debt burdens harder to bear. Yet politicians have relied too much on temporary growth boosts by using debt, rather than making painful choices, said the BIS. Mr Caruana said that during booms, workers and capital are shifted to slow-growing sectors, with a “long-lasting negative” impact on productivity growth. “Misallocated labour needs to move from these sectors to other parts of the economy,” he said. The BIS said that the current turmoil in Greece typified the kind of “toxic mix” of private and public debt being used as a solution to economic problems, rather than making the proper commitment “to badly needed” structural reforms. Mr Caruana said that policymakers must now focus on the supply side of the economy, introducing the right reforms, rather than continue to lean on debt which will inevitably undermine growth. In effect, we are phucked. Check out the report: https://www.bis.org/publ/arpdf/ar2015e1.pdf The world will be unable to fight the next global financial crash as central banks have used up their ammunition trying to tackle the last crises, the Bank of International Settlements has warned.
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#1. To: buckeroo, All (#0)
The BIS embracing Supply Side economics. Holy Worthless Currency, Batman, the world must really be phucked. потому что Бог хочет это тот путь
Fear not!
Almost worth the paper its written on. потому что Бог хочет это тот путь
As long as the U.S. dollar remains the world's "reserve currency" we will suffer far less than other countries. The magic question is how long can the dollar remain the world's reserve currency? The Euro is in more trouble than the dollar, so there isn't any chance it will disrupt the dollar. But, here is what most people don't understand -- the hard working people in China have saved up $21 TRILLION in dollars. Currently, China has relatively closed capital markets. But their closed capital markets will ultimately end. If they ended today, the Chinese people will have $21 TRILLION dollars in savings and the American government will have $18 TRILLION in debt. The dollar would be over. However, an enormous disruption can't be taken overnight without bad consequences across the board. But the Chinese government is preparing for the day when the dollar will be replaced by the Yuan. Then very bad times will fall on America and it will be our own fault.
If the dollar falls, so does the buying power of those savings. And a lot of the jobs of those Chinese savers who have a huge export market to America. Look at the plight of Japanese savers who now enjoy interest on savings below .5% (as I recall from an article a year or so back). The real danger is the central banks have gone too far and a second Great Depression like the Thirties happens again. Much of our economy is a kind of phony economy. The same is true in many countries. They've resorted to a lot of tricks to prop up their economies and very little real economic reform has occurred to place those countries on sounder footing. Look at the fight over Greece. Rather than Chinese savings, the more immediate threat is the collapse of the euro over the Greek crisis. Back in the Thirties, the Great Depression was a series of dominoes falling, starting with a few runs on banks in Austria, allegedly the original source of the Depression. The first dominoes to fall.
Seven. Hundred. TRILLION. Who will hold the vampires accountable?
Hundred. TRILLION. http://www.wsj.com/articles/heard-on-the-street-bank-regulators- roar-at-700-trillion-market-1407361223 Who will hold the vampires accountable? " No one will hold them accountable, EXCEPT a firing squad. 700 Trillion, a financial hell is coming. Si vis pacem, para bellum
Hundred. TRILLION. Who will hold the vampires accountable? Beats me. I just want my piece of the pie, too. Don't you?
Mr Caruana said that policymakers must now focus on the supply side of the economy, introducing the right reforms, rather than continue to lean on debt which will inevitably undermine growth.
#2. To: SOSO (#1)
(Edited)
...the world must really be phucked...
I have a plan... 
#3. To: Chuck_Wagon (#2)
I have a plan...
#4. To: buckeroo (#0)
(Edited)
#5. To: cranko (#4)
But, here is what most people don't understand -- the hard working people in China have saved up $21 TRILLION in dollars.
#6. To: buckeroo (#0)
#7. To: VxH (#6)
" Seven.
#8. To: VxH (#6)
Seven.
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