The financial crisis that started in 2008 was combated by both banks and the government in an attempt to shorten its span. At the time anything that could be done to get us out of the hole seemed like a good idea, but how will those decisions made effect us in the future? The Bank of International Settlements seems to think that we have ruined any hope of defending ourselves during the next financial crisis.
In their recent annual report, BIS claims that many factors point to a defenseless world upon the arrival of the next financial crisis. What did we do that soiled our future so much? The first factor BIS discusses is the real interest rate, which has never been so low for such a long period of time. They point out that lowering the interest rate gives a short term fix but its longevity cannot be sustained. Many policy makers through out Europe right now have interest rates below zero! The domino effect comes in play now, with low interest rates causing bonds to loss value.
What does this all mean though? Policy makers have taken the quick and dirty route too often, which means during the next crisis we could see a much longer down swing. For more on the BIS report and what exactly this all means check out this article from the Telegraph.
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