BIS negative outlook

SUBHEAD: Bank for International Settlements says “The world is unable to fight next global crash”.

By Mike Slavo on 29 June 2015 for SHTF Plan  -
(http://www.shtfplan.com/headline-news/central-bank-of-central-banks-says-the-world-is-unable-to-fight-next-global-crash_06292015)


Image above: Headquarters of the Bank for International Settlements in Basel, Switzerland .From (https://www.flickr.com/photos/simply-mo/4889743841).

According to the Bank for International Settlements (BIS), the shadowy “central bank of central banks,” the world as it stands is incapable of combating another global financial crash – a crash that there is every reason to think is coming.

That’s because the economy remains in the hands of the Federal Reserve and other central banks. The financial wizards in THIS VIDEO went so far to say that “we are all slaves to the central banks.” It wasn’t exactly hyperbole.

According to the BIS, central banks have already “used up their ammunition” by driving interests to below zero, freezing investment for the important stuff like production and infrastructure, and instead fueling huge bubbles for wonder kids on Wall Street to play in.

Now, everything is basically teetering on the edge until the music stops. According to the BIS, it will soon be time to pay the piper – as “persistent ultra-low rates” are poised to unleash destruction upon the economy like King Kong set loose on Manhattan:
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 worse, the advanced countries will be unable to fight back against the serious consequences, according to their 2015 annual report :
• 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.
Central banks have backed themselves into a corner after repeatedly cutting interest rates to shore up their economies.

Central banks may have contributed [to the coming crisis] by fuelling costly financial booms and busts and delaying adjustment.”
In past years, the BIS has painted a clear picture of the bleak financial landscape brought on by central bank policy since the 2008 crisis.

It warned in 2013 that:
Fresh action from central banks to kick-start growth may do more harm than good, by distorting financial markets and jeopardising stability.

“Unfortunately, central banks cannot do more without compounding the risks they have already created.” (source)
In 2014, it found that central banks have failed to achieve a recovery, and are incapable of doing so:
Robust, self-sustaining growth still eludes the global economy… Central banks cannot solve the structural problems that are preventing a return to strong and sustainable growth.
“Most of all, central banks cannot enact the structural economic and financial reforms needed to return economies to the real growth paths authorities and their publics both want and expect.”
What central bank accommodation has done during the recovery is to borrow timeBut the time needs to be used wisely, as the balance between benefits and costs is deteriorating.” (source)
Given the unique insider position of the Bank of International Settlements in the global financial power structure, these are foreboding words to be met with mature concern. This is a tacit admission that the powers that be know the next big crisis is around the corner, and they are ready to watch us drown in it – this time, without reaching down to offer us up.



BIS Warning

SUBHEAD: Monetary policymakers have run out of room to fight the next crisis with interest rates unable to go lower.

By Peter Spence on 29 June 2015 for the Telegraph  (http://www.telegraph.co.uk/finance/economics/11704051/The-world-is-defenseless-against-the-next-financial-crisis-warns-BIS.html)

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.

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.”

“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.

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.
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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.

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.

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