– BIS warns “unrealistic and dangerous to expect that monetary policy can cure all the global economy’s ills”
– Bank of International Settlements warns that recent turmoil is not caused by isolated incidents
– Debt levels are now so extreme they threaten the financial system
– Ultra low rates have led to mal-investment and bigger boom/bust cycles
– Emerging markets vulnerable to deeper crises
– ECB easy money may juice markets for a while but reckoning is coming
– BIS acknowledge that central banks rig markets
– Gold and silver protect against crises in financial system
In a stark warning, the Bank for International Settlements (BIS), the central bank of central banks, has said in its quarterly report that the turmoil that has shaken global stock markets in recent weeks showed how developed and emerging markets were exposed to the unwinding of financial vulnerabilities built up since the 2008 crisis.
The sell-offs rocking equity markets reflect the “release of pressure” accumulated along “major fault lines”, the BIS said, as it warned that investors should not expect central banks to be able to ride to the rescue and solve such deep-rooted problems.
The BIS thus dispelled the misleading narrative that the growing instability in global markets can be brought under control by the Federal Reserve and other masters of monetary policy.
According to the head of its Monetary and Economic department, Claudio Borio “It is unrealistic and dangerous to expect that monetary policy can cure all the global economy’s ills.”
In the report the BIS – known as the central bank of central banks – warned that recent turmoil in markets were not caused by isolated incidents but rather “the release of pressure that has gradually accumulated over the years along major fault lines”.
The Bank was one of the few large entities to warn in advance of the crash in 2008 [see “Gold Up as the $500 Trillion Derivatives Time Bomb Keeps Ticking“]. The report warned that debt levels are now so extreme that they threaten the entire financial system.
The BIS warns that the already battered emerging markets are particularly vulnerable to crisis. While debt to GDP ratios are mild compared to those of the developed economies at 167% they have increased by 50% since 2007 which usually precipitates a major crisis.
Emerging markets are further exposed because of the large amount of dollar denominated debt they have taken on – over $3 trillion for non-financial corporations. If and when the Fed begin to raise rates it will affect liquidity in emerging markets and may also cause capital flight into the perceived stronger dollar.
“Dollar borrowing . . . [spills] over into the rest of the economy in the form of easier credit conditions,” said Hyun Song Shin, who advises the BIS. “When the dollar borrowing is reversed, these easier domestic financial conditions will be reversed.”
Incidentally, in covering the story, the FT matter-of-factly stated that “markets have been systematically rigged by central bankers” – a charge for which we and others have been ridiculed for making in the past.
Full article: BIS Warns of ‘Major Faultlines’ In Global Debt Bubble (GoldCore)