Warnings about the state of the world economy and financial system come from the Bank for International Settlements (BIS) — known among the relevant brotherhood as “the central banker’s central bank”. (This owes more to the fine dinners it provides to national central bankers than to any financial “accommodations” it might offer in a crisis — that is still largely the job of the US Fed.)
“Inflationary pressures might turn out to be more significant than anticipated” said BIS general manager, Henry’s old pal, Malcolm Knight. “Authorities should continue gradually to normalise the level of policy interest rates” as the economy extends what “may well go down in history as a ‘golden age’.”
Amen to that, but it looks to Henry more like a platinum age. Companies seem to be “regaining pricing power” and in China and other rapidly developing nations wages are rising fast.
If you do not wish to read all of Henry’s account for Goldmembers, skip to the final paragraph of the BIS report – reproduced below — and think deeply about what it means.
The bottom line of the BIS report is in fact all about the grand themes of inflation, asset booms and busts and whether central banks should try to prevent or reduce booms or just let them rip and pick up the pieces later.
In an increasingly globalised world, the problem is global but policies are not yet globally coordinated (do I spot a lightly hidden agenda here?):
Finally, it is worth noting that domestic policymakers have always faced the challenge of responding to external shocks but, in our globalised and market-driven world, these have become ever more significant. Moreover, for the same reasons, the actions of domestic policymakers increasingly have external effects on others. These interactions apply in good times, but perhaps become more important in bad ones, when the efforts of many national authorities need to be harnessed to manage international problems at the least cost. While international cooperation has improved in some areas, the political and institutional structure has not kept up with these changing global realities. There is still far too strong a tendency for national authorities to go it alone, and for international dialogue to go no further than that. This is yet another global imbalance that urgently needs to be dealt with.
Seatbelts should be firmly fastened, gentle readers, now it is not just Henry and his colleagues (e.g. Lex here yesterday) who are sounding the bell.
Read more at Henry Thornton.