Too much credit

Marketplace Staff Jun 25, 2007


Doug Krizner: The Bank of International Settlements is the world’s most prestigious financial body. Think of it as the central bank for the world’s central banks. The latest report from BIS, released yesterday, is warning of a credit bubble. Ambrose Evans-Pritchard of London’s Daily Telegraph has taken a look, he joins us now. Ambrose, your report says the BIS is concerned about another 1930s-style slump in the global economy?

Ambrose Evans-Pritchard: Well they have a sort of passage where they sort of look through past crises and they’re quite clearly very concerned that there could be a repeat here and that huge excesses are being built up as a result of loose monetary policy and too much debt. And they say that it’s an illusion that you can simply tackle these problems after the event by cutting interest rates.

Krizner: Have we ever received a warning like this from the BIS before? I mean is this new?

Evans-Pritchard: Well this has been a theme that they’ve persistently developed. Just remember who they are, they are the bank of central bankers. They’re completely outside political control really, unlike the IMF and so forth, so what you get is sort of a pure analysis from them, and they’ve been very concerned about world central banks keeping rates too low for too long and storing up trouble. In other words, doing on a global scale essentially what happened in America in the ’20s and what happened in Japan in the ’80s.

Krizner: Well I guess it comes down to the definition of inflation and whether asset inflation is part of the mandate of the Federal Reserve, I mean to control asset inflation.

Evans-Pritchard: Well that’s exactly right, but there is a problem when you let these asset booms get out of hand. So essentially you know the consensus around the world is becoming ‘you shouldn’t let this kind of thing happen’ and it’s the Federal Reserve that’s rather out of line, I mean, their official line still is ‘it’s not their business to pop asset bubbles, you’ve just go to let them run, we deal with the problems later.’

Krizner: Thank you so much for taking the time to speak with us.

Evans-Pritchard: Ok Bye.

Krizner: Business reporter Ambrose Evans-Pitchard of the Daily Telegraph.

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