www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7859800/BIS-plays-with-fire-demands-double-barrelled-monetary-and-fiscal-tighten...
Both fiscal and monetary policy may have to be tightened at the same time and before recovery is entrenched, a chilling possibility for asset markets. "Macroeconomic support has its limits," said the bank's annual report.
The Swiss-based "bank for central bankers" said ultra-low rates and massive fiscal stimulus saved the world from an economic meltdown during the credit crisis, but the balance of advantage has since shifted.
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There are limits to how long monetary policy can remain expansionary. Keeping interest rates near zero for too long, with abundant liquidity, leads to distortions and creates risks for financial stability. We cannot wait for the resumption of strong growth to begin the process of policy correction."
The bank said the US and Europe made the fatal error of holding rates too low after the dotcom bust, fearing a slide towards deflation. The effect was to fuel asset bubbles and depress credit yields, pressuring lenders to chase risk. "Our recent experience with exactly these consequences a mere five years ago should make us extremely wary this time around," it said.
80esimo rapporto di BIS
www.bis.org/publ/arpdf/ar2010e.htm