'As stock markets continue to rise—Wall Street’s Dow Jones index hit a new record high yesterday following the US Senate’s passage of a massive tax cut bill—there are growing warnings that a new financial crisis is in the making.
In its quarterly review of financial conditions, issued on Sunday, the Bank for International Settlements (BIS), sometimes known as the central bankers’ bank, said the situation bore similarities to that which prevailed in the lead-up to the 2008 crash.
Increases in interest rates by the US Federal Reserve and the Bank of England had failed to choke off risky investments, and financial bubbles were growing, it warned. Financial investors were basking in the “light and warmth” of improving global economic growth, subdued inflation and soaring stock markets, while underlying risks were increasing.
Introducing the BIS review, Claudio Borio, the head of its monetary and economic department, said:
“The vulnerabilities that have built around the world during the long period of unusually low interest rates have not gone away. High debt levels, in both domestic and foreign currency, are still there. And so are frothy valuations.
“What’s more, the longer the risk-taking continues, the higher the underlying balance sheet exposure may become. Short-term calm comes at the expense of possible long-run turbulence.”
Last Friday, Neil Woodford, described as one of Britain’s most high-profile investment fund managers, issued a warning even sharper than that of the BIS. In an interview with the Financial Times, he said stock markets around the world were in a “bubble” that, when it burst, could be “bigger and more dangerous” than some of the worst market crashes in history.'
Read more: Warnings of Financial Crash as Stock Markets Continue to Surge