Bank Analysts Say Stocks Are In 'Euphoric' Territory And We're Screwed When The Recession Hits

BI ^ | 6-30-2014 | Jim Edwards

[blam]

Jim Edwards
June 30, 2014

 The Bank for International Settlements — the Swiss-based financial institution that acts as a counterparty to national central banks — has declared that stock markets are currently in a "euphoric" state and has urged central banks globally to begin tightening interest rate policies now while economies are growing rather than wait for another recession, when it will be too late.

Those are scary words, coming from a set of economists whose job it is to monitor how capable central banks are of responding to economic conditions with flexible monetary policy.

The subtext (and not-so-subtext) of BIS's annual report is that because many central banks have reduced interest rates to zero — the U.S. and Japan included — they are currently without weapons to boost the economy should another crisis hit. You can't go lower than zero, basically.

These words from the BIS ought to terrify anyone who thought central banks were unprepared for the last recession in 2007, when U.S. interest rates were "high" at about 5.3%:

Financial markets are euphoric, but progress in strengthening banks’ balance sheets has been uneven and private debt keeps growing. Macroeconomic policy has little room for manoeuvre to deal with any untoward surprises that might be sprung, including a normal recession.

And that crisis looks set to arrive any day now because stocks are at a peak. Bloomberg underlined the point at the weekend:

(snip)

[blam]

By Tuesday We'll Know Something Very Big About The US Economy

[The Working Man]

If cash is losing value in the mattress, say, at 25% per year, all other factors equal, I’d gladly pay 5% per year TO the bank to hold that money.

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I’m confused... if all things being equal, wouldn’t your loss be 30% if it was in the bank?

[C210N]

Yes, you are correct... thanks for correcting me!

got focused on the two SCOTUS decisions today...