Even BIS is worried

Posted | 02/07/2014 / Views | 2326
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The Bank for International Settlements (BIS) is effectively the Central Banks of the world’s central body.  They released their latest annual report over the weekend.  The following are excerpts from the summary (http://www.bis.org/publ/arpdf/ar2014e_ov.htm ).

“The global economy has shown encouraging signs over the past year. But its malaise persists, as the legacy of the Great Financial Crisis and the forces that led up to it remain unresolved. To overcome that legacy, policy needs to go beyond its traditional focus on the business cycle. It also needs to address the longer-term build-up and run-off of macroeconomic risks that characterise the financial cycle and to shift away from debt as the main engine of growth.”

“By mid-2014, investors again exhibited strong risk-taking in their search for yield: most emerging market economies stabilised, global equity markets reached new highs and credit spreads continued to narrow. Overall, it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally.”

“In this second phase of global liquidity, corporations in emerging market economies are raising much of their funding from international markets and thus are facing the risk that their funding may evaporate at the first sign of trouble. More generally, countries could at some point find themselves in a debt trap: seeking to stimulate the economy through low interest rates encourages even more debt, ultimately adding to the problem it is meant to solve.”

So even the body representing the perpetrators of this unprecedented global economic debt fuelled stimulus experiment is sounding the warning bells.  Debt can be cleared by default or high inflation.  Gold and silver should thrive on either scenario.

ABC News ran a good article on it that puts Australia’s position in all of this into perspective too.  http://www.abc.net.au/news/2014-06-29/bis-warns-low-rate-policies-may-generate-next-financial-crisis/5558292