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BIS Sounds the Alarm on Global Crash Danger; Glass-Steagall Needed Now!

Dec. 4, 2017 (EIRNS)—In its latest quarterly report, released yesterday, the Bank for International Settlements (BIS) sounded the alarm that the global financial situation is fraught with dangers. Record-high asset prices and unsustainable domestic and foreign currency debt levels are reminiscent of the period prior to the 2008 financial crisis, despite central bank efforts to tighten credit, the BIS said, CNBC reported.

Claudio Borio, head of the BIS’s Monetary and Economic Department, spoke to media yesterday and warned that

"the vulnerabilities that have built around the globe during the long period of unusually low interest rates have not gone away. High debt levels, in both domestic and foreign currency are still there. And so are frothy valuations."

What’s more, he added,

"the longer the risk-taking continues, the higher the underlying balance sheet exposures may become. Short-run calm comes at the expense of possible long-run turbulence."

In terms of the U.S. economy, the BIS noted, the four increases in short-term-policy interest rates since the end of 2015 don’t appear to have discouraged investors from taking on risk, as bloated asset prices indicate. The fall in equity prices and increase in broader borrowing costs for households and businesses that normally result when central banks raise interest rates haven’t materialized in the United States. The Federal Reserve’s tightening hasn’t made a dent in what Borio describes as market "ebullience." Naturally, there is no mention of Glass-Steagall as the only means of stemming the unbridled speculation that accounts for such "ebullience."

"It is as if time had stood still," Borio remarked.

"Financial market participants had basked in the light and warmth of their ‘Goldilocks economy’ in the previous quarter. They continued to do so in the most recent one."

In its coverage of the BIS report, The Guardian points to warnings by Neil Woodford, founder of Woodford Investment Management in the UK, who told the Financial Times in an interview published Dec. 1 that he believes that global stock markets are in a bubble, and when it bursts, it will be bigger and more dangerous than some of the worst market crashes in history.

"There are so many lights flashing red that I am losing count."