The world is defenceless against the next financial crisis, warns BIS

Monetary policymakers have run out of room to fight the next crisis with interest rates unable to go lower, the BIS warns.

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 scathing 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.”

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  • I did not know what this organization was, so I wiki’d it. Interesting. It was originally created to manage reparations of Germany to all other countries after World War 1; it was supposed to be dissolved (consensus vote), but the process was deliberately put on the slow track until Harry Truman led to its formal revival in concert with the original lone holdout, Britain. More specifically, this is a 60 member organization originally consisting only of Central Banks but is now semi-private–meaning a combination of sovereign central banks but also private banking interests who are permitted to buy into membership. Its alleged purpose is to encourage (advise, guide, suggest) the central banks of the membership maintain appropriate reserves, liquidity, and blah-blah-blah—and adopting any co-ordinated policy amongst the members resolves into competitive voting blocks of the US, EU and World Bank.

    With this in mind, it seems the importance of this story is that an organization designed to “help” central banks do their jobs is telling its own membership they are all at risk as long as interest rates are maintained at historic lows.

  • And so later today I found this in an unrelted article about how Germany’s debt was restructured after World War 1 and 2–presumably through this same organization:

    To put the Greek crisis in context, consider the debt relief and credit support given to post-Nazi Germany by the Allies, who wrote off 93 percent of the Nazi era debt in the early 1950s and stretched out the pre-Nazi debt incurred during World War I and the Weimar period well into the 21st century. (Robert Kuttner “Just Say No” – Huffington Post July 6 2015)

    ….well into the 21st Century Germany is still paying off World War 1 debt, and they want austerity for Greece? Hmmmmm…..

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