In These New Times

“The statements in here are talking about comparisons to the 1920s depression and is actually pointing fingers at central banks and their policies and their misunderstanding of how the financial system works and their love of the new-fangled things that have brought the world to the precipice of what could be one of the most major financial catastrophes in the history of economics,” Satyajit Das said.

Stephen Long

1st July(abc)

The Bank for International Settlements (BIS) says global markets may still be set for severe economic downturn.

Last year, when inflation was low and the world economy was still strong and stable, BIS gave a a prescient warning about the growing risks that could bring it all undone.

In its latest annual report, released last night in Basel Switzerland, BIS gives a grim and candid assessment.

“The facts suggest that the magnitude of problems to be faced could be much greater than many now perceive… while difficult to predict, their interaction does appear to point to a deeper and more protracted global downturn than the consensus view seems to expect,” the report says in part.

Despite this, it cautions against using rate cuts to bail out the world economy, arguing that loose monetary policy helped create the mess in the first place.

Satyajit Das is a risk analyst who tipped the global credit crisis.

“It’s an extraordinary statement of just how close the world economy is to a total financial meltdown,” he said.

Associate Professor Dick Bryan, an economist from the University of Sydney, uses the same adjective.

“It’s a quite extraordinary message,” he said.

“It’s a big statement that the world economy could potentially be facing one of the biggest crises for the last 150 years.”

Most central banks and the International Monetary Fund are tipping only a mild hit to world economic growth.

The Bank for International Settlements, whose chief economist Harry White is retiring, says they are wrong.

“The Bank for International Settlements goes to great lengths to juxtapose their own view to what they call the consensus and that consensus is saying that inflation will be a blip that it’ll only be around for a year and we’ll get recovery and they’re saying no,” Associate Professor Bryan said.

“The central banks have used loose monetary policy and low interest rates to bail themselves out of every crisis since 1987 and what they are saying is at some point in time the piper must be paid,” Satyajit Das said.

“The fears about higher inflation and what central banks can and can’t do is really quite frank. I think it would be best to sum up this report by saying the super-hero central banker is dead.”

The Bank for International Settlements notes parallels between the current financial turmoil and the great economic woes of modern history.

“The 1930s, the 1870s, they’re referring to parallels with the Asian financial crisis and they’re giving a big serve to the way in which the world financial system has been run,” Associate Professor Bryan said.

“The statements in here are talking about comparisons to the 1920s depression and is actually pointing fingers at central banks and their policies and their misunderstanding of how the financial system works and their love of the new-fangled things that have brought the world to the precipice of what could be one of the most major financial catastrophes in the history of economics,” Satyajit Das said.

He adds that he has never seen a report as dire as this from a global economic agency.

“It’s telling central banks that they got it wrong, that they shouldn’t have let us get into this precarious position, that they should have been constraining credit earlier and that they’ve put us in a position now where there just aren’t clear policy options,” Associate Professor Bryan said.