The Bank for International
Settlements — the Swiss-based financial institution that acts as a
counterparty to national central banks — has declared that stock markets are in a "euphoric" state
and has urged central banks globally to begin tightening interest-rate
policies now while economies are growing rather than wait for another
recession, when it will be too late.
Those are scary words coming
from a set of economists whose job it is to monitor how capable central
banks are of responding to economic conditions with flexible monetary
policy.
The subtext (and not so subtext)
of BIS's annual report is that, because many central banks have reduced
interest rates to zero — the U.S. and Japan included — they are without
weapons to boost the economy should another crisis hit. You can't go
lower than zero, basically.
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