World must end debt-fuelled growth model: BIS
The world needs to reduce its reliance on debt-driven growth if it is to end the boom and bust cycles that have characterised the global economy, according to the Bank for International Settlements (BIS). Debt levels are too high, productivity growth is too low, and the room for policy manoeuvre is too narrow, the BIS said. The most conspicuous sign of this predicament is interest rates that continue to be persistently and exceptionally low, it said.

The organization commonly known as the central bank of central banks has called for an end of boom-and-bust cycles that have plagued the global economy, urging lawmakers quickly to adjust current policy. "The global economy cannot afford to rely any longer on the debt-fueled growth model that has brought it to the current juncture." the Bank for International Settlements (BIS) warns in a new annual report published on Sunday.

Debt levels are too high, productivity growth is too low, and the room for policy maneuver is too narrow, the BIS warned. Adding that the most "conspicuous" sign of this predicament is interest rates that continue to be persistently and exceptionally low.





$8 trillion with negative yield

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Central banks around the world have leapt into action following the global financial crisis of 2008 and the sovereign debt crisis in the euro zone. Several institutions have introduced bond-buying programs and cut benchmark rates in an effort to stimulate lending. Some have even pushed rates below zero with a negative rate effectively charging banks who park cash at a central bank. The European Central Bank (ECB), the Danish National Bank (DNB), the Swedish Riksbank, and the Swiss National Bank (SNB) have all pushed key short-term policy rates into negative territory. This has suppressed bond yields in wider asset markets with BIS estimating that a record of close to $8 trillion in sovereign debt was trading at negative yields at the end of May.

Nonetheless, the Basel-based BIS - which was one of the few organizations to foresee the 2008 crash - says that this monetary policy has been "overburdened for far too long."

"Prudential, fiscal and, above all, structural policies must come to the fore," it said in the report Wednesday, adding that it's essential to avoid the temptation to succumb to "quick fixes or shortcuts."

"The measures must retain a firm long-run orientation. We need policies that we will not once again regret when the future becomes today," it added.

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