Sunday, June 29, 2014

Bank for International Settlements Warns on ‘Euphoric’ Markets

The Bank for International Settlements has warned that “euphoric” financial markets have become detached from the reality of a lingering post-crisis malaise, as it called for governments to ditch policies that risk stoking unsustainable asset booms, reports FT.

I have been warning at the EPJ Daily Alert that central banks, especially the Federal Reserve, will be very slow in raising interest rates, even after price inflation acceleration becomes more evident. It will be, as I have written, "too little, too late." The BIS appears to have the same concern. More from FT:
Leading central banks should not fall into the trap of raising rates “too slowly and too late”, the BIS said...

“Particularly for countries in the late stages of financial booms, the trade-off is now between the risk of bringing forward the downward leg of the cycle and that of suffering a bigger bust later on,” it said...

The BIS, the bank for central banks, has been a longstanding sceptic about the benefits of ultra-stimulative monetary and fiscal policies and its latest intervention reflects mounting concern that the rebound in capital markets and real estate is built on fragile foundations...

Global markets are currently “under the spell” of central banks and their unprecedented monetary policy settings, it said.
It almost sounds as though some at the BIS understand Austrian School Business Cycle Theory.

-RW