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Interest Rates May Have To Rise To Curb Return To Risky Behaviour, Warns Bis

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http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7859347/Interest-rates-may-have-to-rise-to-curb-return-to-risky-behaviour-warns-BIS.html

The Bank for International Settlements warned on Monday that central banks may have to raise interest rates to prevent a return to the risky behaviour that triggered the financial crisis.

The global central bank body also warned that economic recovery was at risk of a relapse if governments do not move fast to wind down crisis stimulus programmes.

"Extraordinary support measures helped to contain contagion across markets, preventing the worst. But some measures have delayed the needed adjustments in the real economy and financial sector, where the reduction of leverage and balance sheet repair are far from complete, the BIS said in its annual report..

The BIS said that while sharp cuts in interest rates had helped forestall an economic meltdown there were "limits to how long monetary policy can remain expansionary".

"Keeping interest rates near zero for too long, with abundant liquidity, leads to distortions and creates risks for financial and monetary stability," the report said.

"An extended period of such low policy rates can encourage borrowers to shorten the duration of their debts, facilitate the increased leverage of risky positions and delay necessary balance sheet adjustments."

The BIS also said there was an urgent need for "credible" measures to cut budget deficits and high levels of public debt in "many industrial countries", which were not named.

The report said the crisis had left a "daunting legacy" especially in industralised nations, where the recovery was still fragile and uneven.

"The combination of remaining vulnerabilities in the financial system and the side effects of ongoing intensive care threaten to send the patient into relapse and to undermine reform efforts," the report said.

"Macroeconomic support has its limits."

The BIS said recent reaction of financial markets showed that those limits had been reached in several countries.

The distortions have already been created and the worlds central banks have already got themselves into a position where increasing rates will force bankruptcy on the global financial system.

Unless there is a massive green bubble I really can't see a way out of this mess.

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http://blogs.independent.co.uk/2010/06/28/bis-annual-report-is-frightening-reading/

The BIS report is long, very long, and very frightening. You may not take much notice of them, but the Bank for International Settlements is the club of central bankers – the equivalents of Mervyn King round the world. You should pay attention, as they sit in the engine room of the world’s financial system. And, in a nutshell there message is this: if, as is not impossible, we undergo another banking crisis there are many governments in the world who will simply not be able to afford to rescue their banking systems like they did in 2008-09. Including Britain.

If that happens, I should add, it means frozen cash machines, collapse of payments systems and a slump. It is scarcely believable, but we really are running out of backstops. If the US and the IMF run out of cash we can hardly ask Mars to come in and rescue us. The second credit crunch may easily be harder than the first; in which case countries with solvent governments will be a more secure place to live. Sadly, that may not include Britain, which has big debts and an even bigger banking system.

Don’t say you weren’t warned…

The Indy goes all TFH.

tin-foil-hat.jpg

Edited by interestrateripoff

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http://uk.reuters.com/article/idUKTRE65R3B520100628

Britain's tough budget does not remove the need to start raising interest rates now, Bank of England Monetary Policy Committee member Andrew Sentance told Reuters on Monday.

The former British Airways chief economist shocked markets last week when it was revealed that he had voted to raise interest rates by a quarter-point to 0.75 percent, the first call for an increase by any member in nearly two years.

In the first interview with an MPC member since the new government last week announced the harshest budget in a generation, Sentance said the fiscal plans were much as expected and did not change his view that it was time to start gradually withdrawing the extraordinary stimulus now in place.

"I don't think it changes my view, partly because the tightening put forward in the budget is not far off expectations before the budget," he said.

Sentance said that the policy tightening he wanted should not be characterised as a hike but was just the start of a gradual process of reining back the amount of stimulus monetary policy was providing the economy.

He said the time was right for tighter monetary policy given the improvement in the global economy, the turnaround in Britain itself and the resilience of inflation.

The Bank of England is charged with keeping inflation at 2 percent but prices have been rising much faster and the CPI rate is currently running at 3.4 percent.

I wonder if these interviews are timed?

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Morning bump read.

Cheers for this news IRRO. And for the morning bump.

It is indeed new news! And fundamental.

And it looks like the BIS is on our (HPC) side. The main negative side-effect they see is asset bubbles:

The bank said the US and Europe made the fatal error of holding rates too low after the dotcom bust, fearing a slide towards deflation. The effect was to fuel asset bubbles and depress credit yields, pressuring lenders to chase risk. "Our recent experience with exactly these consequences a mere five years ago should make us extremely wary this time around," it said.

Edit: In our, British case, the effect of keeping IR so low has been the re-inflation of our house prices. :(

I agree with BIS. :)

Edited by Tired of Waiting

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http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7859347/Interest-rates-may-have-to-rise-to-curb-return-to-risky-behaviour-warns-BIS.html

The distortions have already been created and the worlds central banks have already got themselves into a position where increasing rates will force bankruptcy on the global financial system.

Unless there is a massive green bubble I really can't see a way out of this mess.

The main source of growth in the world economy is now increasing demand in the BRICs and other developing countries. The best chance we have is the continuation of this. And it is the most probable too, fortunately.

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  • 150 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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