BIS Warns of ‘Major Faultlines’ In Global Debt Bubble

– BIS warns “unrealistic and dangerous to expect that monetary policy can cure all the global economy’s ills”
– Bank of International Settlements warns that recent turmoil is not caused by isolated incidents
– Debt levels are now so extreme they threaten the financial system
– Ultra low rates have led to mal-investment and bigger boom/bust cycles
– Emerging markets vulnerable to deeper crises
– ECB easy money may juice markets for a while but reckoning is coming
– BIS acknowledge that central banks rig markets
– Gold and silver protect against crises in financial system

BIS via Business Insider

In a stark warning, the Bank for International Settlements (BIS), the central bank of central banks, has said in its quarterly report that the turmoil that has shaken global stock markets in recent weeks showed how developed and emerging markets were exposed to the unwinding of financial vulnerabilities built up since the 2008 crisis.

The sell-offs rocking equity markets reflect the “release of pressure” accumulated along “major fault lines”, the BIS said, as it warned that investors should not expect central banks to be able to ride to the rescue and solve such deep-rooted problems.

The BIS thus dispelled the misleading narrative that the growing instability in global markets can be brought under control by the Federal Reserve and other masters of monetary policy.

According to the head of its Monetary and Economic department, Claudio Borio “It is unrealistic and dangerous to expect that monetary policy can cure all the global economy’s ills.”

In the report the BIS – known as the central bank of central banks – warned that recent turmoil in markets were not caused by isolated incidents but rather “the release of pressure that has gradually accumulated over the years along major fault lines”.

The Bank was one of the few large entities to warn in advance of the crash in 2008 [see “Gold Up as the $500 Trillion Derivatives Time Bomb Keeps Ticking“].  The report warned that debt levels are now so extreme that they threaten the entire financial system.

Public and private debt in the developed world has risen 36% since the crisis and is now 265% of GDP. It adds that the post-crisis problems have been dealt with with the same ineffectual policies that caused the crisis – prolonged ultra low interest rates and easy monetary policy.

In this period of ultra low rates – and rates have not risen in almost a decade – rich countries have become bloated on debt rather than paying down and clearing the imbalances in the system. The West may consequently be entering a period of stagnation similar to the trap that has afflicted Japan since the 1990’s.

Borio warned that investor reliance on every pronouncement by the Fed were hampering its desire to return to a normal rate environment.

“This is . . . a world in which interest rates have been extraordinarily low for exceptionally long and in which financial markets have worryingly come to depend on central banks’ every word and deed, in turn complicating the needed policy normalisation,” – Claudio Borio

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IMPORTANT NEWS

Gold retains sharp gains after sluggish U.S. jobs data – Reuters
Gold Holds Biggest Gain Since January on Rates; Palladium Surges – Bloomberg
Gold scores more than 2% gain, but still posts weekly loss – MarketWatch
Economists Can’t Find the Silver Lining in Poor Jobs Report – Bloomberg
Perth Mint Silver Sales Jump As Prices Fall to Six-Year Low – Bloomberg

IMPORTANT ANALYSIS

We’re in a really scary market: Paul Gambles – CNBC
Thoughts From the Frontline: Recession Watch – Maudlin Economics
Physical Silver Demand Will Destroy Paper Rigged Markets – SRSRocco Report
Gundlach Explains Why The Market Hasn’t Crashed Yet: “People Are Holding And Hoping” – Zero Hedge
Russia bombing in Syria escalates oil price war with Saudi Arabia – The Telegraph

Read more News & Commentary on GoldCore.com