Tag Archives: BIS

Hidden Amongst the Furore: Synchronised Warnings From the BIS and the IMF, by Steven Guinness

The world is not paying enough attention to central bankers and it should be, according to Steven Guinness, who sounds a lot like Brandon Smith. From Guinness at stevenguinness2.wordpress.com:

It has become a disconcerting trend that as geopolitical events intensify and keep a majority of people engaged in the latest outbreak of political theatre, the words of central bankers fall on increasingly deaf ears.

At a seminar of the European Stability Mechanism this month, Bank for International Settlements General Manager Agustin Carstens delivered a speech called, ‘Shelter from the Storm‘.

The speech can be summarised as follows:

  • The IMF may not have enough resources to manage a future financial crisis
  • The post 2008 ‘recovery’ was nurtured by central banks
  • Central bank intervention has coincided with the increased accumulation of debt in both major and emerging economies
  • The challenge for central banks is to meet their inflation target
  • Governments must quickly implement ‘growth-friendly structural reforms’ as monetary policy is ‘normalised’

The latter bullet point refers to Basel III, the regulatory reforms that were devised through the BIS in response to the financial crisis triggered in 2008. The BIS have been pushing the line in recent communications that without these reforms being fully implemented by national administrations, the financial system will remain vulnerable to a renewed downturn. Full adoption of the reforms is not due to occur until 2022.

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The World Is Quietly Decoupling From the U.S. – And No One Is Paying Attention, by Brandon Smith

The world is finding ways to get around the US’s currency and its payment mechanisms. From Brandon Smith at birchgold.com:

Blind faith in the U.S. dollar is perhaps one of the most crippling disabilities economists have in gauging our economic future. Historically speaking, fiat currencies are essentially animals with very short lives, and world reserve currencies are even more prone to an early death. But, for some reason, the notion that the dollar is vulnerable at all to the same fate is deemed ridiculous by the mainstream.

This delusion has also recently bled into parts of the alternative economic movement, with some analysts hoping that the Trump Administration will somehow reverse several decades of central bank sabotage in only four to eight years. However, this thinking requires a person to completely ignore the prevailing trend.

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Debtor days are over as BIS calls time on world credit binge, by Mehreen Khan

From Mehreen Khan at telegraph.co.uk:

The world’s credit boom is beginning to show dangerous signs of unraveling, ushering in a period of fresh turmoil for the over-indebted global economy, the Bank of International Settlements has warned.

The globe’s top financial watchdog called time on the world’s debt binge, noting that debt issuance and cross border flows in emerging economies slowed for the first time since the aftermath of the global credit crunch at the end of last year.

With financial markets thrown into fresh paroxysms in 2016, oscillating between extremes of “hope and fear”, the over-leveraged world was finally approaching a day of reckoning, said Claudio Borio, the bank’s chief economist.

“We may not be seeing isolated bolts from the blue, but the signs of a gathering storm that has been building for a long time”, he said.

The Swiss authority – known as the “central bank of central banks” – has long rang the alarm bell over the state of global indebtedness, warning that unprecedented monetary policy was storing up problems in a world which still lumbers under weak productivity, insipid growth, and has no appetite for major reforms.

In its latest quarterly review, the BIS said some of its starkest warnings were now coming into fruition.

It noted that international securities issuance turned negative at the end of last year to the tune of -$47bn – the sharpest contraction since the third quarter of 2012. The retrenchment was largely driven by the financial sector, said the BIS.

To continue reading: Debtor days are over as BIS calls time on world credit binge


Austrians get (some) mainstream credibility, by Alasdair Macleod

From Alasdair Macleod at goldmoney.com:

Well, well: who would have believed it. First the Bank for International Settlements comes out with a paper that links credit booms to the boom-bust business cycle, then Britain’s Adam Smith Institute publishes a paper by Anthony Evans that recommends the Bank of England should ditch its powers over monetary policy and move towards free banking.

Admittedly, the BIS paper hides its argument behind a mixture of statistical and mathematical analysis, and seems unaware of Austrian Business Cycle Theory, there being no mention of it, or even of Hayek. Is this ignorance, or a reluctance to be associated with loony free-marketeers? Not being a conspiracy theorist, I suspect ignorance.

The Adam Smith Institute’s paper is not so shy, and includes both “sound money” and “Austrian” in the title, though the first comment on the web version of the press release says talking about “Austrian” proposals is unhelpful. So prejudice against Austrian economics is still unfortunately alive and well, even though its conclusions are becoming less so. The Adam Smith Institute actually does some very good work debunking the mainstream neo-classical economics prevalent today, and is to be congratulated for publishing Evans’s paper.

The BIS paper will be the more influential of the two in policy circles, and this is not the first time the BIS has questioned the macroeconomic assumptions behind the actions of the major central banks. The BIS is regarded as the central bankers’ central bank, so just as we lesser mortals look up to the Fed, ECB, BoE or BoJ in the hope they know what they are doing, they presumably take note of the BIS. One wonders if the Fed’s new policy of raising interest rates was influenced by the BIS’s view that zero rates are not delivering a Keynesian recovery, and might only intensify the boom-bust syndrome.

These are straws in the wind perhaps, but surely central bankers are now beginning to suspect that conventional monetary policy is not all it’s cracked up to be. For a possible alternative they could turn to the article by Anthony Evans, published by the Adam Smith Institute. Their hearts will sink, because Evans makes it clear that central banks are best as minimal operations, supplying money through open market operations (OMOs) on a punitive instead of a liberal basis. Instead of targeting inflation, Evans recommends targeting nominal GDP. Evans’s approach is deliberately sound-money-light, on the basis that it is more likely to be accepted than a raw sound-money approach. But he does hold out the hope it will be an interim measure towards sound money proper: initially a Hayekian rather than a Misesian approach.

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Dollar Demand = Global Economy Has Skidded Over the Cliff, by Charles Hugh Smith

From Charles Hugh Smith, at oftwominds.com:

Borrowing in USD was risk-on; buying USD is risk-off.

There is a lively debate about the global demand for U.S. dollars:

Global finance faces $9 trillion stress test as dollar soars (Telegraph.co.uk)

Is There a US$ Shortage? Will it Sink the Global Economy? Again? (Mish)

The Dollar Squeeze – How Problematic Is It? (Acting Man)

The Global Dollar Funding Shortage Is Back With A Vengeance And “This Time It’s Different” (Zero Hedge), which references a Bank for International Settlements (BIS) paper: Global dollar credit: links to US monetary policy and leverage.
Correspondent Mark G. went through the BIS report and offered these insightful comments:

“Unless you enjoy multivariate regression analysis I suggest skimming the BIS working paper. Major points I got were:

1. Almost all of the dollar denominated debt and bond growth since 2009 was generated by the global shadow banking system. Banks per se were smaller players in issuing this debt, and US-based banks (i.e. the ones in reach of Federal Reserve life preservers) were minor. Sovereign wealth funds are large players in this. When we think of huge sovereign wealth funds held by major hydrocarbon exporters then the pucker factor rises.

One implied result of the BIS paper is that it will be extremely difficult or impossible for Federal Reserve emergency liquidity operations to stem a panic, even if the Fed is inclined to do so. AEP in the Telegraph article stated this more directly. The real problem is that modern bailout operations have large fiscal components as well as monetary components. Looking at the Bundestag’s chronic heartburn with Greece and the EFSF is educational. Alternatively, consider how well proposals for a larger TARP type program aimed primarily at foreign entities would be received by the US Congress. And especially in 2016.


To continue reading: Dollar Demand=Global Economy Has Skidded Over the Cliff