Markets "euphoria" is detached from reality.

Graham_Devon

The Bank of International Settlements have suggested that that markets have become euphoric and detached from reality.

It called for governments to ditch policies that stoke unsustainable asset booms.

The Bank for International Settlements has warned that “euphoric” financial markets have become detached from the reality of a lingering post-crisis malaise, as it called for governments to ditch policies that risk stoking unsustainable asset booms.

While the global economy is struggling to escape the shadow of the crisis of 2007-09, capital markets are “extraordinarily buoyant”, the Basel-based bank said, in part because of the ultra-low monetary policy being pursued around the world.


Leading central banks should not fall into the trap of raising rates “too slowly and too late”, the BIS said, calling for policy makers to halt the steady rise in debt burdens around the world and embark on reforms to boost productivity.

Speaking on the use of "macro prudential tools" and the BOE response a few days ago, the BIS state:

“These tools have proved very helpful in increasing the resilience of the financial system, but they have been only partially effective in restraining the build-up of financial imbalances,” the BIS said. “Failing to rely on monetary policy can raise even more serious challenges down the road.”

Thought this snippet was poignant.

“Good policy is less a question of seeking to pump up growth at all costs than of removing the obstacles that hold it back,” the BIS argued, saying the recent upturn in the global economy was a precious opportunity for reform and that policy needed to become more symmetrical in responding to both booms and busts.

http://www.ft.com/cms/s/0/795160a2-fe26-11e3-b4f1-00144feab7de.html#axzz366n3khiv

wotsthat

Missed a bit Graham

The report comes days after the Bank of England became the first major central bank to raid its new macroprudential toolkit to stop a credit boom in the housing market from derailing the UK’s economic recovery.

Can't help thinking this report is more aimed at the bond markets where, for example, Greek bonds have gone from a yield of 30% to 5% in two years.

Graham_Devon

wotsthat wrote: »

Missed a bit Graham



Can't help thinking this report is more aimed at the bond markets where, for example, Greek bonds have gone from a yield of 30% to 5% in two years.

Well, the report specifically points out "unsustainable asset prices" and the steady rise of debt burdens due to ultra loose monetary policy.

But yes, I'm sure it's more aimed at bonds. Journalist error? Or the BIS trying to grab headlines? Or a bit of both?

purch

Read the same story on Reuters, Bloomberg or the BBC and you get 3 different angles, so make that 4 different interpretations

wotsthat

Graham_Devon wrote: »

Well, the report specifically points out "unsustainable asset prices" and the steady rise of debt burdens due to ultra loose monetary policy.

But yes, I'm sure it's more aimed at bonds. Journalist error? Or the BIS trying to grab headlines? Or a bit of both?

It's the BIS annual report. It covers a multitude of topics.

http://www.bis.org/publ/arpdf/ar2014e.pdf

The position seems to be that the low interest rate environment is forcing a search for yield which may encourage undue risk taking. For example pushing down sovereign debt yields and pushing up asset prices.

Let me know what you think when you've read it.

Thrugelmir

wotsthat wrote: »

It's the BIS annual report. It covers a multitude of topics.

http://www.bis.org/publ/arpdf/ar2014e.pdf

The position seems to be that the low interest rate environment is forcing a search for yield which may encourage undue risk taking. For example pushing down sovereign debt yields and pushing up asset prices.

Let me know what you think when you've read it.

Interesting. Will read more later.

Perhaps our current crop of politicians should take heed of this statement.

And it calls for moving away from debt as the main engine of growth.