The BIS annual report is out, and you probably won’t read a more depressing economic brief this year. The gruesome details: Global economic growth in advanced economies was halved last year, to 1.6%, amidst an “abysmal fiscal outlook”; we have “a global banking system that is still dependent on economic support”; bank credit spreads are back at levels seen during the height of the crisis; and advanced economies would need 20 consecutive years of surpluses equaling 2% of GDP just to get to precrisis debt-to-GDP levels.
But the world’s central banks are also warning us about themselves. The consequences of endless low rates, the BIS writes, include reduced incentives for indebted nations to cut back and “the wasteful support of effectively insolvent borrowers and banks.” Explaining why world central bank holdings have doubled in the last decade, the BIS does not mince words about who’s to blame:
The extraordinary persistence of loose monetary policy is largely the result of insufficient action by governments in addressing structural problems. Simply put: central banks are being cornered into prolonging monetary stimulus as governments drag their feet and adjustment is delayed.
You wouldn’t be wrong to think that sounds a lot like Bernanke’s polite nudging of Congress over the last few years. To Matt Yglesias, the BIS report sounds like a series of excuses. Izabella Kaminska wonders if the world’s central banks have gone all Sartre. Scott Sumner, adding to the philosophical confusion, notes that some economists can’t even agree if the Fed’s post-crisis policies have actually increased the money supply or decreased it. Dismal science, indeed. – Ryan McCarthy