The risk of a 1930s-style economic slump has been heightened by ‘euphoric’ markets tapping cheap global credit, one of the world’s pre-eminent financial institutions has said. In its annual report, the Bank for International Settlements noted that the conditions that led to the Great Depression of the 1930s and the Asian crises in the 1990s reflected the current environment. ‘Each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a ‘new era’ had arrived,’ the bank said. The BIS, the ultimate bank of central bankers, pointed to a confluence of worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system. ‘Behind each set of concerns lurks the common factor of highly accommodating financial conditions. ‘Tail’ events affecting the global economy might at some point have much higher costs than is commonly supposed,’ it said. The BIS said China may have repeated the disastrous errors made by Japan in the 1980s when Tokyo let rip with excess liquidity. ‘The Chinese economy seems to be demonstrating very […]