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Former BIS Economist: Financial Crisis Now Worse than 2007

Jan. 20, 2016 (EIRNS)—Former chief economist of the Bank of International Settlements (BIS), and now chairman of the OECD’s Review Committee, William White has said it before, but in an interview with Daily Telegraph financial editor Ambrose Evans-Pritchard published today, he reiterated his point strongly: “The situation is worse than it was in 2007.”

While White fails to raise the obvious emergency measures that must be taken to avoid the coming crash—a Glass-Steagall regime applied internationally and a global agreement on reconstruction along the lines laid out by China’s New Silk Road—his warnings about the impending crisis are clearly well-informed.

“Our macroeconomic ammunition to fight downturns is essentially all used up,” said White.

“Emerging markets were part of the solution after the Lehman crisis. Now they are part of the problem, too. Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief,”

he said.

“It will become obvious in the next recession [sic] that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something. The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians,”

White added.

White also pointed to the European banks that “have already admitted to 1 trillion dollars of non-performing loans: they are heavily exposed to emerging markets and are almost certainly rolling over further bad debts that have never been disclosed,”

according to Pritchard.

White explicitly said that the bail-in of deposits above 100,000 euros will have to help the European banking system “to be recapitalized on a scale yet unimagined.”

Low interest rates and Quantitative Easing since the 2008 crisis has lead to debt bubbles in Asia and elsewhere Combined public and private debt is at an all-time high to 185pc of GDP in emerging markets and to 265pc of GDP among members of the OECD, a 35 percentage points increase since the 2007.