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BIS Warns of ‘Major Faultlines’ In Global Debt Bubble

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– BIS warns “unrealistic and dangerous to expect that monetary policy can cure all the global economy’s ills”

– Bank of International Settlements warns that recent turmoil is not caused by isolated incidents

– Debt levels are now so extreme they threaten the financial system

– Ultra low rates have led to mal-investment and bigger boom/bust cycles

– Emerging markets vulnerable to deeper crises

– ECB easy money may juice markets for a while but reckoning is coming

– BIS acknowledge that central banks rig markets

– Gold and silver protect against crises in financial system

 

BIS via Business Insider

In a stark warning, the Bank for International Settlements (BIS), the central bank of central banks, has said in its quarterly report that the turmoil that has shaken global stock markets in recent weeks showed how developed and emerging markets were exposed to the unwinding of financial vulnerabilities built up since the 2008 crisis.

The sell-offs rocking equity markets reflect the “release of pressure” accumulated along “major fault lines”, the BIS said, as it warned that investors should not expect central banks to be able to ride to the rescue and solve such deep-rooted problems.

The BIS thus dispelled the misleading narrative that the growing instability in global markets can be brought under control by the Federal Reserve and other masters of monetary policy.

According to the head of its Monetary and Economic department, Claudio Borio “It is unrealistic and dangerous to expect that monetary policy can cure all the global economy’s ills.”

In the report the BIS – known as the central bank of central banks – warned that recent turmoil in markets were not caused by isolated incidents but rather “the release of pressure that has gradually accumulated over the years along major fault lines”.

The Bank was one of the few large entities to warn in advance of the crash in 2008 [see “Gold Up as the $500 Trillion Derivatives Time Bomb Keeps Ticking“].  The report warned that debt levels are now so extreme that they threaten the entire financial system.

Public and private debt in the developed world has risen 36% since the crisis and is now 265% of GDP. It adds that the post-crisis problems have been dealt with with the same ineffectual policies that caused the crisis – prolonged ultra low interest rates and easy monetary policy.

In this period of ultra low rates – and rates have not risen in almost a decade – rich countries have become bloated on debt rather than paying down and clearing the imbalances in the system. The West may consequently be entering a period of stagnation similar to the trap that has afflicted Japan since the 1990’s.

Borio warned that investor reliance on every pronouncement by the Fed were hampering its desire to return to a normal rate environment.

“This is . . . a world in which interest rates have been extraordinarily low for exceptionally long and in which financial markets have worryingly come to depend on central banks’ every word and deed, in turn complicating the needed policy normalisation,” – Claudio Borio

The low rate environment has led to an array of wasteful “investment” such as ghost cities in China and pumping up share prices with stock buybacks in the U.S. where the underlying business is not performing.

The BIS warns that the already battered emerging markets are particularly vulnerable to crisis. While debt to GDP ratios are mild compared to those of the developed economies at 167% they have increased by 50% since 2007 which usually precipitates a major crisis.

Emerging markets are further exposed because of the large amount of dollar denominated debt they have taken on – over $3 trillion for non-financial corporations. If and when the Fed begin to raise rates it will affect liquidity in emerging markets and may also cause capital flight into the perceived stronger dollar.

“Dollar borrowing . . . [spills] over into the rest of the economy in the form of easier credit conditions,” said Hyun Song Shin, who advises the BIS. “When the dollar borrowing is reversed, these easier domestic financial conditions will be reversed.”

Incidentally, in covering the story, the FT matter-of-factly stated that “markets have been systematically rigged by central bankers” – a charge for which we and others have been ridiculed for making in the past.

Unlike the many US dollar denominated paper instruments that have been created in an unprecedented fashion in recent years and continue to be – gold is finite.

Gold bears the confidence of millions of people throughout the world and especially people – both poor and rich – in Asia. People in the the non-western world value gold’s intrinsic value far above the promises of politicians and bankers and far above the unbacked and increasingly debased paper and electronic currency of today.

 

Read more on the GoldCore.com blog

 

DAILY PRICES
Today’s Gold Prices: USD 1134.35, EUR 1006.43 and GBP 746.28 per ounce.
Friday’s Gold Prices: USD 1106.30, EUR 990.86 and GBP 730.21 per ounce.
(LBMA AM)

 

Gold in USD – 1 Week

After the poor jobs report on Friday, gold rose and silver surged. Gold was up 2.2% or $23 and closed at $1,137.30 while silver surged over 5% or 68 cents to $15.24. Gold was 0.8% lower last week while silver rose 1.1%.

Gold bullion is slightly lower in European trading after posting their biggest one-day jump since January after the worse than expected jobs report on Friday. Gold has consolidated on Friday’s price gains and is trading near $1,136 following a 2.2% rise on Friday.

Silver surged 5.4% on Friday, its sharpest rise since December, 2014. It rose to its highest in two weeks of $15.35 early on Monday and also appears to consolidating on the sharp gains seen on Friday.

Palladium hit a 3-1/2-month high of $706 on Monday, while platinum is trading at $910 after hitting a near-seven-year low in the previous session.

 

IMPORTANT NEWS

Gold retains sharp gains after sluggish U.S. jobs data – Reuters
Gold Holds Biggest Gain Since January on Rates; Palladium Surges – Bloomberg
Gold scores more than 2% gain, but still posts weekly loss – MarketWatch
Economists Can’t Find the Silver Lining in Poor Jobs Report – Bloomberg
Perth Mint Silver Sales Jump As Prices Fall to Six-Year Low – Bloomberg

 

IMPORTANT ANALYSIS

We’re in a really scary market: Paul Gambles – CNBC
Thoughts From the Frontline: Recession Watch – Maudlin Economics
Physical Silver Demand Will Destroy Paper Rigged Markets – SRSRocco Report
Gundlach Explains Why The Market Hasn’t Crashed Yet: “People Are Holding And Hoping” – Zero Hedge
Russia bombing in Syria escalates oil price war with Saudi Arabia – The Telegraph

Read more News & Commentary on GoldCore.com

 

 

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Mon, 10/05/2015 - 12:10 | 6631251 lasvegaspersona
lasvegaspersona's picture

Once again the word 'gold' has been translated incorrectly into 'gold and silver'.

The BIS does not mention silver. Central banks do not hold silver (nor palladium nor iron nor copper).

There is only one monetary metal...gold.

If you are hoping silver will again be a monetary metal you should consider that it is not now and add that factor to your risk calculations.

Gold is just as cheap as silver and a thousand dollars of gold is easier to hold than the same price of silver.

If there is a depression the industrial use of silver will fall and with it the price of silver.

I'm not saying silver is bad, just that it has not been used anywhere in the world as a monetary metal since 1935 (China) and not in the US since the 1870s.

best of luck to all

Mon, 10/05/2015 - 13:43 | 6631796 Womb Service
Womb Service's picture

Why would we give a shit about what the (banker) state considers to be money?

 

Record demand for Silver coins tells us all we need to know about what the people consider to be money.

Mon, 10/05/2015 - 13:45 | 6631793 Anasteus
Anasteus's picture

The rats from BIS start leaving the sinking boat.

But we all know it was you, guys from BIS, who heavily participated on the current havoc. Being in your place I'd consider booking flying tickets to New Zealand or South America while you can.

Mon, 10/05/2015 - 13:32 | 6631691 fukidontknow
fukidontknow's picture

What's a 1963 US half dollar made of?

What's a 1966 Australian 50 cent coin made of?

Why are 2016 Kangaroos legal tender?

Why are Canadian Maples legal tender?

 

If you want to sound smart don't say stupid stuff.

 

Silver is Money.

Mon, 10/05/2015 - 08:53 | 6630462 JailBanksters
JailBanksters's picture

So not enough debt then to support the debt ponzi scheme

Mon, 10/05/2015 - 08:20 | 6630377 Secret Weapon
Secret Weapon's picture

Sounds like an arsonist complaining about the heat and smoke.

Mon, 10/05/2015 - 08:13 | 6630344 Grandad Grumps
Grandad Grumps's picture

What is probably just as important, if not more important, is that the high level of I-Bank malinvestment, such as in propping up equity prices and shuffling money to insiders, has prevented good investment.

But, I include the propping up of gold and other commodity prices to bubble levels, and the creation of paper commodities and index trading, just more examples of malinvestment. I also look at war, militarism and the security state as additional examples of malinvestment.

That money could have been funneled to needed projects instead of paper asset inflation schemes.

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