“We may not be seeing isolated bolts from the blue, but the signs of a gathering storm that has been building for a long time,” Borio said.
The above comes from the Bank of International Settlements in Switzerland.
In mid December we asked;
The winds sure did start to whip at the beginning of this year. Markets were down broadly, driven to a large degree by oil which had fallen by huge amounts over the past year. The low price of crude was bankrupting some drillers. Drillers which had debt. This debt suddenly began looking more high risk than high yield all of a sudden. China continued its economic march in the dark. The winds were starching the flags.
But things have calmed a bit now. Markets have buoyed with the price of oil. We are at this moment back over 17000 on the Dow. Has the storm passed? Was it just a hard winter squall?
The Bank of International Settlements thinks there is more ugliness to come. Or perhaps more accurately it believes that the conditions we see in the monetary policy world are uniquely, and historically worrisome. It sees “faith” in the power of central banks diminishing. This lack of “faith” is something new.
“The latest turbulence has hammered home the message that central banks have been overburdened for far too long post-crisis, even as fiscal space has been dwindling and structural measures lacking. Despite exceptionally easy monetary conditions, in key jurisdictions growth has been disappointing and inflation has remained stubbornly low,” he said.
The Swiss watchdog warned of “great” uncertainty about the behavior of individuals and institutions if rates were to decline further into negative territory or remain negative for a prolonged period.
“Market participants have taken notice. And their confidence in central banks’ healing powers has – probably for the first time – been faltering. Policymakers too would do well to take notice,” Borio added.