(telegraph.co.uk)—The venerable BIS – the so-called ‘bank of central bankers’ – was the only global body to warn repeatedly and loudly before the Lehman crisis that the system was becoming dangerously unstable.
It has acquired a magisterial authority, frequently clashing with the International Monetary Fund and the big central banks over the wisdom of super-easy money.
Mr Borio said investors have come to count on central banks to keep the game going but engenders moral hazard and is ultimately wishful thinking. “Financial markets have worryingly come to depend on central banks’ every word and deed,” he said.
A disturbing feature of the latest scare over China is a “shift in perceptions in the power of policy”, a polite way of saying that investors have suddenly begun to question whether the emperor is wearing any clothes after all following the botched intervention in the Shanghai stock market and the severing of the dollar exchange peg in August….
Mr Borio warns investors not to push their luck. “It is unrealistic and dangerous to expect that monetary policy can cure all the global economy’s ills,” he said.
Nor is there any easy way out of the debt-trap now encompassing much of the globe.