Former BIS Chief Economist Warns “More Dangers Now Than In 2007”

Having warned in the past that "the system is dangerously unacnhored," former chief economist of the Bank for International Settlements, William White, told Bloomberg TV overnight that the current situation "looks very similar to 2008," adding that OECD sees "more dangers" today than in 2007.

The chairman of Economic and Development Review Committee at OECD, warned that prices are very high – in particular for high yield assets, VIX is very low, house prices are rising strongly, equity markets rising, and all these are a source of concern.

Additionally, White noted:

  • India’s debt problems go back a long way, and there are significant governance issues, including at state-owned banks.
  • China’s debt situation isn’t a lot different to India’s, but the acceleration of loans and credit growth in China is very fast
  • It’s not just the debt level in China that is worrisome, but the speed that it’s accumulating; maybe some of these loans won’t be repaid or serviced.
  • We don’t have a liquidity problem that central banks can solve – if we have too much debt, we have a debt resolution or insolvency problem and only governments can address problems like that.
  • World needs more fiscal expansion, structural reforms, and also have to look closely at debt write-off some of it and maybe recapitalize financial institutions.
  • We have got the mix of income that goes to capital versus labor wrong in many countries, and we need to look at that.
  • Central bank tightening is inevitable, but have to be careful.

As White concluded previously,

"it is every man for himself. And we do not know what the long-term consequences of this will be,"

and it appears to be getting worse.

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