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Bis: Ultra Low Interest Rates Could Make Global Economy Permanently Unstable

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http://www.telegraph.co.uk/finance/personalfinance/interest-rates/10933457/BIS-ultra-low-interest-rates-could-make-global-economy-permanently-unstable.html

Ultra low interest rates and the failure of policy to "lean against" the build-up of financial imbalances are in danger of making the global economy permanently unstable, the Bank for International Settlements has warned.

In its annual report, the Swiss-based "bank of central banks" spelled out the risks of relying too heavily on monetary policy to stimulate the economy. The BIS warned that central banks including the Bank of England and US Federal Reserve could keep monetary policy loose for too long, with potentially damaging consequences.

"The prospects for a bumpy exit together with other factors suggest that the predominant risk is that central banks will find themselves behind the curve, exiting too late or too slowly," the BIS said on Sunday.

It added that a "persistent easing bias" by fiscal, monetary and prudential policymakers had lulled governments "into a false sense of security" that delayed needed consolidation and created a risk that instability could "entrench itself" in the system. "Policy does not lean against the booms but eases aggressively and persistently during busts," the BIS said. "This induces a downward bias in interest rates and an upward bias in debt levels, which in turn makes it hard to raise rates without damaging the economy – a debt trap.

"Systemic financial crises do not become less frequent or intense, private and public debts continue to grow, the economy fails to climb onto a stronger sustainable path, and monetary and fiscal policies run out of ammunition. Over time, policies lose their effectiveness and may end up fostering the very conditions they seek to prevent."

Oh a debt trap! The only way to avoid a debt trap is to stop debt getting to destabilising levels. However the problem is debt expansion has been the made driver of global GDP growth. Stop the expansion of debt stop growth.

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Where can I get a job where you get paid for stating the bleedin' obvious?

If it were ever possible to create sustainable prosperity by simply creating money and giving it to rich people this would have been done long ago by some smart ancient Roman or Greek- it's insane hubris on the part of the current incumbents of central banks that they seem to think that they-uniquely in all of history- have discovered the secret of creating real wealth by sheer fiat alone.

At least the ancients had the wit to retire unsustainable debt rather than prop it up- unlike their modern day counterparts they grasped the reality of exponential claims on a finite system and did something intelligent about it.

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Where can I get a job where you get paid for stating the bleedin' obvious?

Sod that, I want to be OVERpaid for stating the obvious :D

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The Fed is already way behind the curve. US house price inflation is galloping away again, Redfin has regional metros within a whisker of peak 2006 even as disposable incomes stagnate or fall. Stagflationary bust ahoy?

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Where can I get a job where you get paid for stating the bleedin' obvious?

If it were ever possible to create sustainable prosperity by simply creating money and giving it to rich people this would have been done long ago by some smart ancient Roman or Greek- it's insane hubris on the part of the current incumbents of central banks that they seem to think that they-uniquely in all of history- have discovered the secret of creating real wealth by sheer fiat alone.

At least the ancients had the wit to retire unsustainable debt rather than prop it up- unlike their modern day counterparts they grasped the reality of exponential claims on a finite system and did something intelligent about it.

That's what they're doing.

BoE has 'retired' £375bn of 'unsustainable' debt already.

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A major exercise in CYA

Quite. These are the same people that keep finding excuses not to raise rates.

Members are the central banks or monetary authorities of:

Algeria, Argentina, Australia, Austria, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, Chile, China, Colombia, Croatia, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong SAR, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Macedonia (FYR), Malaysia, Mexico, the Netherlands, New Zealand, Norway, Peru, the Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, the United Arab Emirates, the United Kingdom and the United States, plus the European Central Bank.

http://www.bis.org/about/orggov.htm

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