BIS warns of complacency

Posted | 19/09/2014 / Views | 2203
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The Bank for International Settlements (BIS), the central banks of the world’s central bank, this week issued yet another warning (see our previous articles here and here) of the consequences of all the “unusually accommodative” easy money stimulus happening.  This stimulus of near zero interest rates and pumping of liquidity (money printing) was first introduced to stave off recession during the GFC but has remained as it fights depressed growth around the world.  Claudio Borio, who heads the BIS's monetary and economic unit says these policies have created an “illusion of permanent liquidity” and..

"The longer the music plays and the louder it gets, the more deafening is the silence that follows," 

"Markets will not be liquid when that liquidity is needed most," he warned, urging "sound prudential policies (and) extra prudence on the part of market participants themselves".

YOU are a market participant and here is a world authority warning you to apply prudence right now.  Prudence is balancing your risks against the sort of systemic collapse he warns of.  Gold and silver are generally not correlated to the very shares and urban property that will bear the brunt of this collapse and they are at historically low prices because everyone is complacent.  But as Mr Borio says:

“markets have shown exceptionally subdued volatility" at levels similar to before the GFC, "a sign of high risk-taking" and "a common mistake is to take unusually low volatility and risk spreads as a sign of low risk when, in fact, they are a sign of high risk-taking".