BIS warns global economic imbalances now worse than 2008 with emerging markets most vulnerable
By: Peter Cooper
Monday, 16 September 2013
The only major global financial body to correctly warn that the global financial crisis was coming in 2008, the Swiss-based Bank of International Settlements is again sounding alarm bells as the Federal Reserve prepares to wind down its QE3 money printing program this week.
The BIS says many imbalances are now actually worse than in 2008 as low interest rates have taken investors increasingly into high risk instruments in pursuit of yield, reports The Daily Telegraph today.
It quotes BIS former chief economist William White who made his reputation for warning of wild behavior in financial markets in 2007 as saying: ‘This looks like 2007 all over again, but even worse…Total public and private debt levels are 30 per cent higher in the advanced economies than they were then and we have a new problem with bubbles in emerging markets.’
The BIS analysis is written in arcane banker-speak but its latest quarterly review flags up high levels of ‘leveraged loans’ that are used by the weakest borrowers in the syndicated loan market. Investors are also buying up all manner of high-risk loans risking a repeat of the subprime mortgage debacle.
Credit to emerging markets is off the scale and bond issuance from these nations actually exceeds the advanced economies for the first time. It is an accident just waiting to happen in the view of the very sober and correct BIS which got this right in 2007-8 at a time when most banks just went with the flow and ended up close to drowning.