Bank For International Settlements: Deficits Are Crippling

"The Bank for International Settlements made two observations in its 8oth Annual Report. One made sense. The basis for the second is a mystery.

Much like the declaration of the G-20 nations, the BIS believes that the preeminent threat to the global economy is deficits.

“The first and most immediate challenge is to make a convincing start on reducing budget deficits in the advanced economies. Placing public debt on a sustainable path must be accompanied by structural reforms to enhance sustainable growth.”The second imperative mentions in the BIS report was that central banks need to raise the cost of borrowing.

“The second challenge is to foster the strengthening of balance sheets and necessary behavioural changes in the financial industry. Official support was intended to facilitate orderly adjustment. But if such support is maintained for too long, it will create moral hazard, undermine private sector financial intermediation and generate new, hidden risks.”