The Blog

2020-

2020-12-08 d
THE BANKING ABYSS

The BIS Issues A Dire Warning: "We Are Moving From The Liquidity To The Solvency Phase Of The Crisis"

There are three certainties in life: death, taxes and the BIS - the central banks' central bank - warning about excesses from monetary policy (the most recent amusing example of this was last October when as we wrote, "Fed Announces QE4 One Day After BIS Warns QE Has Broken The Market"). Actually, to this list of 3 certainties we can add one more: central banks roundly ignoring the warnings from the central bank mothership.

That, however, does not prevent the BIS from continuing this trend of warnings, and today the Basel-based organization did just that when in its Quarterly Review publication it cautioned that the surge in financial markets following COVID-19 vaccine breakthroughs and the U.S. election has left asset prices increasingly stretched.

Sounding surprisingly similar to Goldman, which as we reported earlier today issued an almost identical warning, when it observed that its sentiment indicator is now +2.0 standard deviations above average...

... And in a dire warning that got virtually no airplay today, Borio made the following stunning announcement to reporters. "We are moving from the liquidity to the solvency phase of the crisis."

Translation: it's about to get much worse, only because central banks will ignore all the warnings, they will double down on the same failed policies, pushing leverage to even record-er highs, yields to even record-er lows, and sparking a propagation of zombies the likes of which have never before been seen.

"We should be expecting more bankruptcies going forward yet credit spreads are quite low by historical standards, and indeed while banks are pricing risk more carefully we don’t see the same in capital markets."

One almost sensed the futility in Borio's comments when he said that with $17.5 trillion worth of bonds now carrying negative yields many money managers were being pushed into riskier and riskier assets.

... In his parting words absolution to the helicopter money insanity that has taken over, Borio had no choice but to admit that - despite his misgivings - he has to side with the central banks: "The outlook is rather uncertain and you would rather err on the side of doing too much as opposed to doing too little."

Brilliant... just ignore that the entire world is now on the verge of a financial cliff where the next crash will not only wipe away hundreds of trillions in wealth and destroy confidence in central banks and fiat money, but abolish the voodoo "science" that is modern economics that keeps people like Borio employed. (read more)

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