Those booming financial markets around the world
look like a bubble driven by central bank-minted cheap money, warns
the Bank for International Settlements (BIS). In its annual report,
the Switzerland-based bank for central banks cautioned that
investors have become dependent on easy money for profits at a time
when “malaise persists” in the global economy and “growth in
advanced economies remains below pre-crisis averages.”
According to the latest report:
Financial markets have been acutely sensitive to monetary
policy, both actual and anticipated. Throughout the year,
accommodative monetary conditions kept volatility low and fostered
a search for yield. High valuations on equities, narrow credit
spreads, low volatility and abundant corporate bond issuance all
signalled a strong appetite for risk on the part of investors. At
times during the past year, emerging market economies proved
vulnerable to shifting global conditions; those economies with
stronger fundamentals fared better, but they were not completely
insulated from bouts of market turbulence. By mid-2014, investors
again exhibited strong risk-taking in their search for yield: most
emerging market economies stabilised, global equity markets reached
new highs and credit spreads continued to narrow. Overall, it is
hard to avoid the sense of a puzzling disconnect between the
markets’ buoyancy and underlying economic developments
globally.
Just a few months ago, the BIS
cautioned that global debt markets had risen to $100 trillion,
with governments as the main perpetrator.
Debt and easy money can’t continue driving the world forever
forever, the report cautions. “Over the longer term, raising
productivity holds the key to more robust and sustainable
growth.”
Running up the credit cards isn’t stand-in for actual
prosperity? You don’t say.
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