The world is defenceless against the next financial crisis

Graham_Devon

This article isn't from just anyone. It's from the Bank of International Settlements.

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.

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.

Theres been a huge amount of positivity around over the past couple of years. A feeling of "it's different this time". The idea that a recovery has taken place....with the condition that we must keep emergency measures in place at all times".

Things are starting, it appears, to turn around now. Not sure whether the BIS has made this statement in reaction to the EU issues or whether it's merely coincidental.

In a nutshell, the BIS is stating we've created all the new problems by insisting on can kicking and false recoveries. (My take).

How many times have we heard on this forum alone that today's interest rates are now the new normal??? The BIS strongly disagrees.

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.

Whatever your view, it's worth a read. It's one of the most scathing arguments against current policy I've read in some time.

wotsthat

The link to the annual report is here

http://www.bis.org/publ/arpdf/ar2015e.htm

Only skimmed it but it looks less exciting than the Telegraph's reporting of it.

I tend to think recovery and recovered mean two different things so it doesn't surprise me to read about a work in progress.

purch

I think the idea that Central Banks have no tools left is pretty obvious.

QE/ZIRP were last resorts.

And unwinding QE and moving towards higher interest rates presents a whole new set of problems.

The longer this time is put off, the harder it will be to pull off.

But we are where we are, recovery cannot be forced.

Rinoa

Hmmm. The Bank of International Settlements.

On their web page it says;

Established on 17 May 1930, the Bank for International Settlements (BIS) is the world's oldest international financial organisation. The BIS has 60 member central banks, representing countries from around the world that together make up about 95% of world GDP.

So the BIS are effectively saying that the central banks, who make up its membership, have got it all wrong. How curious.

Still, they've made Graham happy.

HAMISH_MCTAVISH

Graham_Devon wrote: »

Theres been a huge amount of positivity around over the past couple of years.

Much to your annoyance, no doubt.

can kicking and false recoveries.

I'd explain why you're wrong yet again but frankly I can't be bothered.

Graham_Devon

HAMISH_MCTAVISH wrote: »

I'd explain why you're wrong yet again but frankly I can't be bothered.

Oh you tease.

I was looking forward to a wall of text which I could summise into "It's different this time".

wotsthat

If the next financial crisis is as good as the last then bring it on!

IronWolf

Its so obvious but no ones saying it. Low interest rates led to yield seeking which led to sub prime mortgages and the following crisis. Not content with that mistake we have the same situation again only worse, we are now seeing a boom in junk bonds and corporate debt is going to be the next casualty once things get rocky

Kendall80

wotsthat wrote: »

If the next financial crisis is as good as the last then bring it on!

I got my popcorn ready for tomorrow. Then its top-up tuesday

lawriejones1

Good old fashioned speculation!

mayonnaise

Old news.

https://forums.moneysavingexpert.com/discussion/5016118