BubbleIn its just released annual report, the Bank for International Settlements has issued a strong warning that  “dangerous new asset bubbles are forming“,  & warned that:  “the world could be hurtling toward a new crisis.”



Submitted by Larry White

Just when things seem relatively calm, the Bank for International Settlements releases its annual report that issues a strong warning that significant problems are still out there in the world. Who is the Bank for International Settlements (BIS)? What did they say in this report that matters to us? Let’s take a look.

The BIS is sometimes called the “bank for Central Banks”. Here is a link to the “about us” page on their web site. It lists these bullet points as its broad mission:
  • promoting discussion and facilitating collaboration among central banks;
  • supporting dialogue with other authorities that are responsible for promoting financial stability;
  • conducting research on policy issues confronting central banks and financial supervisory authorities;
  • acting as a prime counterparty for central banks in their financial transactions; and
  • serving as an agent or trustee in connection with international financial operations.
What we can say is that when the BIS issues a warning, Central Banks around the world pay close attention and we should too. Remember that we are always on the lookout for events that could trigger a global financial crisis because that can quickly lead to major monetary system change. In a crisis, by definintion normal conditions do not exist. People are much more willing to accept policy changes that they might otherwise resist in normal times.
In this BIS report, they warn about a lot of potential problems. We will use this Boston Globe article on the report to illustrate some of them and then add some comments. First, here are some exceprts from the Boston Globe article:
“An organization representing the world’s main central banks warned Sunday that dangerous new asset bubbles are forming, even before the global economy has finished recovering from the last round of financial excess.”
“Investors, desperate to earn returns when official interest rates are at or near record lows, have been driving up the prices of stocks and other assets with little regard for the risks, the Bank for International Settlements in Basel, Switzerland, said in its annual report, published Sunday.”
” . . .the BIS’s language in the 2014 edition was unusually direct, as was its warning that the world could be hurtling toward a new crisis.”
“There is a disappointing element of déjà vu in all this,” Claudio Borio, head of the monetary and economic department at the BIS, said in an interview ahead of Sunday’s release of the report, which he described as “a call to action.”
The signs of financial imbalances are there,” Borio said. “That’s why we are emphasizing it is important to take further action while the time is still there.”
“The BIS report said debt levels in many emerging markets, as well as in Switzerland, “are well above the threshold that indicates potential trouble.”
my added comments:
This report certainly does not paint a picture that all is well and the future looks bright. This Boston Globe article lists a number of potential problem areas which we noted above by underlining them. New “asset bubbles” forming. It specifically mentions stock markets in this category. They see “signs of financial imbalances” and issue “a call to action” while the time is still there”. They also note that debt levels are still way too high.
Notice that all these conditions are the same as what led up to the financial crisis in 2008. In that crisis Central Banks (led by the US FED) created enormous sums of new currency to stave off a collapse of the entire system. Unfortunately, what the BIS is saying is that the problems that can lead to systemic crisis were not solved. They were merely postponed.
This is why we must keep alert all the time. Even though things appear calm on the surface right now. Taking the US as an example. We have piled up a whopping $151,000 per taxpayer national debt as shown in the linked national debt clock.Even more troubling, if you add in the future obligations for US taxpayers (future Social Security, Medical expense care, etc) the debt swells to a mind boggling number over $1 million per taxpayer. This debt exceeds the entire total of all “assets per taxpayer”. Let that sink in. You could tax every taxpayer in the US everything they own and it is not enough to cover the future debt obligations that exist today. This is why everyone admits the present system is unsustainable.
Remember that last time (2008) the FED and Central Banks stepped in to stave off collapse. If a new crisis arises (what the BIS is directly warning about in their annual report) the FED can’t do this again. The FED now has a huge $4 Trillion balance sheet from buying assets (and a load of US bonds) already. A new global crisis would easily dwarf what the FED had to do last time because the problems were not solved as the BIS notes. All the numbers are just bigger now. “Asset Bubbles” are still being built according to the BIS.
The FED is also now in a “Catch 22” situation. They want to be able to raise interest rates to convince markets the economy is recovering. But they really cannot do that. If interest rates rise very much the huge US bond portfolio now owned by the FED will take a huge loss in value. Also, the interest on the huge existing US debt will start going up even more making it harder and harder for the US to reduce the annual deficit. All of this has already caused the US dollar to take a beating. If the FED tries another round of massive QE in another huge crisis, we can expect the US dollar to take another huge hit. And it could all happen fairly quickly if it triggered even as things appear calm. Right now it is just happening at a steady controlled pace.

This whole problem is a main reason for this blog. We believe that the present (US dollar based) system is too unstable to be sustained. At some point it will have to end and be replaced with new “rules of the game”. In that process, we can expect the US dollar will not fare well as sole global reserve currency.

Because we live in a globally interconnected financial world filled with leverage and  derivatives, a crisis that starts anywhere can spread to one everywhere (this is called contagion). It is an ever present concern for Central Banks and other global financial institutions like the BIS. This 2014 annual report from the BIS proves that clearly.

We are trying to follow all of this and also a variety of ways the change we think is coming could take place. We have mentioned several here including:
-slow and steady change where the IMF moves into a greater role and the SDR replaces the US dollar as global reserve currency (with a possible new twist that creates an “everymans SDR”) . Change over time in “non crisis” conditions. (in progress but somewhat stalled at the IMF)
-rapid change as a result of a new crisis where the IMF quickly steps in as “lender of last resort” and replaces the US dollar with the SDR as above, just in a much quicker time frame (Jim Rickards forecasts this)
-slow and steady change that takes place on a regional basis where solutions to problems are tested regionally and the best solutions are adopted globally eventually (happening right now)
-change where the BRIC nations drop out of the existing global financial institutions and form their own system  and promote their currencies globally  to compete with the US dollar (happening right now)
-chaotic rapid change from a crisis where no central problem solving entity arises. Instead the world becomes more de centralized with nations and regions taking over to address problems. the current system collapses and existing global institutions are unable to restore order and confidence (in a world like this, Bitcoin probably thrives)
The future is impossible to predict. But we can take the BIS warning seriously and try to stay informed on this important topic. Major monetary system change is something most don’t really think about, but they should because it would directly impact their lives. And we do notice that more and more people are starting to understand the importance and become informed which we think is a good thing. We also know that there are good people working on these problems which is another good thing.


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  1. O! My! Goodness! I didn’t know it was that bad. Do you think I should Stack? LMAO
    Come on we know what’s coming down the road, we have known it (well I have) for a few years now. Keep Stacking the bad shit is starting to heat up.

  2. Come on we know what’s coming down the road, we have known it (well I have) for a few years now. Keep Stacking the bad shit is starting to heat up.
    Thanks for reading the article. I suspect there is not a lot in the article that will surprise most readers on this site who are more likely to be aware of these issues. My blog is really directed towards people who are new to all this (currency wars, dollar problems, etc). These are people who are becoming more interested, but are going to be skeptical of any message that is not from a mainstream type source.

    My goal with the blog is to help these people ease into learning more about all this in a setting where they will be comfortable. I mostly link to mainstream media and other sources that will be familiar to them while hopefully exposing them to ideas not covered much in the mainstream media. I also intentionally do not try to promote an agenda or political view leaving it up to readers to draw their own conclusions after seeing the information. 

    So articles on my blog will tend to be “old news” to those who already are aware. Unfortunately, that is probably well less than 5% of the US population (maybe even less than that). There is a need to reach out to people who do not have the background in monetary system issues. When I started the blog I never expected many people to read it, but it surprised me. The blog now has had well over 30,000 page views since January this year when it started including readers from over 25 countries. The huge majority are completely new to all these issues and want to learn more. Some very well known people have become readers and email me from time to time with information and comments. I have learned some interesting information along the way as well.

    So I appreciate that Silver Doctors runs some of our articles here even though many readers here are already pretty informed and already have an opinion on how things will go. We are trying to increase the number of people out there who are aware. We think that is a good thing.

    Thanks again for reading,

  3. Larry:
    It is my understanding the SDR would be made up of a “basket of paper currencies”, including the USD.  How can going from one debt back currency to a basket of “debt based currency” change/correct current problems?

  4. Larry:It is my understanding the SDR would be made up of a “basket of paper currencies”, including the USD.  How can going from one debt back currency to a basket of “debt based currency” change/correct current problems?
    In my opinion (which I don’t mention on my blog) I don’t think a fiat based SDR will help anything at all and would be a waste of time. I’ll quickly add that my opinion really doesn’t matter. What matters is what actually happens which is what I try to cover on the blog.

    I do believe there is interest in an actual hard asset backed version of the SDR (as hard as that is to believe for most of us). And yes I am talking about real hard assets, not just paper versions of hard assets. Think in terms of a portfolio of Tier One type assets that would include physical metals, other real tangible assets, as well as various index based asset classes like regular stocks, bonds, (highest rated) etc. The diversity would be intended to reduce the risk of any asset class taking losses. It would have to be genuine backing to get people to accept it and use it.

    Even if it does come about, it doesn’t mean it will solve all problems of course. The existing debt still has to be dealt with for one thing. And the US dollar will undoubtedly take a big hit no matter what happens.

    What I am talking about would be something that would exist alongside all existing currencies, not replace anything. And on one would be compelled to use it (however the intent would be to make it so stable and trustworthy people would choose to own it and use it). Time would tell if it lived up to that or not.

    But it is an interesting twist on all this that is out there and I know is real. My blog is trying to follow all angles and that is just one of them. I cover every news item I can find that is relevant to monetary system change and also try to present a broad variety of opinion articles. I do limit opinion articles to those where the author backs up the opinion with data. That is why I tend to stick with people like Jim Rickards, Mike Maloney, etc. They support their opinions with verifiable data which is important when trying to reach out to people who are new to all these issues in my view.

    Thanks for reading and for your question,

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