Deflation Next, Bank Warns
Many economists' sights are set on inflationary signs and the stock market is bracing for an August interest rate increase, but now an important world bank is warning that deflationary pressures could be next.
The "central bank for central banks," the Bank for International Settlements, in its annual report released Monday said, "The current market turmoil is without precedent in the postwar period. With a significant risk of recession in the U.S., compounded by sharply rising inflation in many countries, fears are building that the global economy might be at some kind of tipping point.
"These fears are not groundless. The magnitude of the problems yet to be faced could be much greater than many now perceive," it said. "It is not impossible that the unwinding of the credit bubble could, after a temporary period of higher inflation, culminate in a deflation that might be hard to manage, all the more so given the high debt levels."
According to the Wall Street Journal, BIS put much of the blame for this economic crisis on the central banks themselves -- because they didn't set interest rates high enough earlier this decade, allowing the unsustainable credit boom.
What's to be done? The more immediate danger is still inflation, BIS said, so it is advising most central banks to raise key interest rates.
The "central bank for central banks," the Bank for International Settlements, in its annual report released Monday said, "The current market turmoil is without precedent in the postwar period. With a significant risk of recession in the U.S., compounded by sharply rising inflation in many countries, fears are building that the global economy might be at some kind of tipping point.
"These fears are not groundless. The magnitude of the problems yet to be faced could be much greater than many now perceive," it said. "It is not impossible that the unwinding of the credit bubble could, after a temporary period of higher inflation, culminate in a deflation that might be hard to manage, all the more so given the high debt levels."
According to the Wall Street Journal, BIS put much of the blame for this economic crisis on the central banks themselves -- because they didn't set interest rates high enough earlier this decade, allowing the unsustainable credit boom.
What's to be done? The more immediate danger is still inflation, BIS said, so it is advising most central banks to raise key interest rates.