Did Treasury just dump more gold (Ft. Knox) into the market? If so, it happened late on a Sunday night.
BIS chief fears fresh Lehman from worldwide debt surge
The world economy is just as vulnerable to a financial crisis as it was in 2007, with the added danger that debt ratios are now far higher and emerging markets have been drawn into the fire as well, the Bank for International Settlements has warned.
Mr Caruana, head of the Swiss-based financial watchdog, said the international system is in many ways more fragile than it was in the build-up to the Lehman crisis. Debt ratios in the developed economies have risen by 20 percentage points to 275pc of GDP since then.
Credit spreads have fallen to to wafer-thin levels. Companies are borrowing heavily to buy back their own shares. The BIS said 40pc of syndicated loans are to sub-investment grade borrowers, a higher ratio than in 2007, with ever fewer protection covenants for creditors.
“Overall, it is hard to avoid the sense of a puzzling disconnect between the markets’ buoyancy and underlying economic developments globally,”
Mr Caruana declined to be drawn on when the bubble will burst. “As Keynes said, markets can stay irrational longer than you can stay solvent,” he said.
The BIS says prolonged monetary stimulus in the US, Europe, and Japan has led to a leakage of liquidity, contaminating the rest of the world. The rising powers of Asia are no longer able to act as a firebreak – as they did after the Lehman crash –and may themselves now be a source of risk.
The BIS backed QE as an emergency measure in early 2009 to avert a deflationary spiral but has long since called for a return to sound money, and even rate rises. “The predominant risk is that central banks will find themselves behind the curve, exiting too late or too slowly,” it said.
This has earned BIS a reputation for Austrian School ideology , accused of encouraging crude liquidation. The bank denies this, tracing the bank’s doctrines to the pre-Keynesian Swedish economist Knut Wicksell.
Wicksell posited a “natural rate of interest”. Holding rates too low creates a host of problems. While his model looks like the modern “Taylor Rule” used by the Fed and other central banks.
“There is something strange about fighting debt by incentivizing more debt.” ~ Jaime Caruana
Read more here.
Aren’t Americans going to be real happy to discover that their gold is missing? Especially when the rest of the world decides to create a new exchange currency that is valued (based) on the precious stuff? The Democrats have really done it this time…
Welcome to fourth-world status. With forty million immigrants who don’t even speak the language.