According to Agustìn Carstens, general manager of BRI, the world economy is still on the verge of collapse.
The Silicon Valley Bank failure last March revived a panicked world economy. The fear of a domino effect like in 2008 was high. Today the March crisis is no longer talked about and considered water under the bridge, but in reality it is not.
The Bank for International Settlements raised the alarm about the economy’s stability and the world banking system in its annual report. The Bri is based in Switzerland, in Basel, and promotes cooperation between central banks and has a "bank of central banks" function.
In presenting the annual report, general manager Agustìn Carstens said that the crisis is not over. On the contrary, we are in a critical and dangerous moment. Even today there is a mix of inflation and high public and private debt that the system cannot sustain much longer.
Financial vulnerabilities are still widespread. In addition to still high inflation, we are faced with high public/private debt levels, fast growing assets, and high assets such as real estate.
According to Carstens, it is necessary to control inflation by bringing it back to dangerous levels. If prices remain higher than expected, banks would face credit losses similar to levels experienced in 2008 when a major global crisis led to Lehman Brothers’ bankruptcy. And the longer inflation remains high, the longer tightening policies will be required, resulting in an increased danger to stability.
The banks are moving correctly by adopting restrictive policies since last year with the increase in rates to lower inflation. This monetary tightening is having consequences. The risk is that rates will have to stay high for much longer. In short, banks could return to bad debts in the long run due to restrictive anti-inflation policies.
Lagarde announces another rate hike in July
Even the ECB and its president Christine Lagarde know inflation is still at high levels, announcing a new rate increase in July. "Our work is not finished yet. Barring a substantial change in the inflation outlook, we will continue to raise rates in July" - he said speaking at the ECB forum in Sintra, Portugal.
According to Lagarde, inflation in the Euro area is still high and will remain so for a long time to come. Fortunately, with the monetary shocks implemented, inflation is decreasing, but it is not yet clear how long it will take to return to the 2% target range. EU inflation is currently at 6.1%.
Once the new increase for July has been announced, it cannot be excluded, indeed it is very likely, that there will be others in the months to come. Until we know: "It is unlikely that in the near future the central bank will be able to declare with absolute certainty that the maximum level of interest rates has been reached" - said Lagarde, announcing that decisions will be taken from time to time by analyzing the data.
Original article published on Money.it Italy 2023-06-27 22:18:15. Original title: Un crollo delle banche è ancora possibile secondo uno dei massimi esperti in materia
