BIS Warns on Global Economy: A Deeper and More Protracted Downturn.

The BIS, also known as the Central Bank of Central Banks, is one of the most respected economic institutions. Prior to the start of the subprime crisis, I had posted an article where the BIS warned and in essence, predicted this current crisis. Now, the BIS is warning again. This time, with the threat of deflation!

BIS:

"The eventual global slowdown could prove to be much greater and longer lasting than would be required to keep inflation under control. This could potentially even lead to deflation, which would evidently be less welcome."

"In the aftermath of a long credit-driven boom, it would not be surprising to see turmoil in financial markets, slowing real growth and temporarily rising inflation."

The Fed also believes that inflationary pressures will eventually come down as growth slows. The only difference being that a rebound in growth seems unlikely as this recession could last well over a year. Professor Shiller is not kidding when he says more stimulus will be needed. See: One Rebate Isn't Enough - New York Times

Inflation will probably still be the main theme this month, as the oil bubble (a.k.a. "oil crisis") continues to dominate. The price of a barrel of oil could easily spike to $200 if the conflict with Iran escalates within the next few weeks. If this be the case, then Professor Roubini deserves some serious credit for making the call. See: Rising Risk of a Military Confrontation between Israel and Iran? - Nouriel Roubini

It seems quite possible that a coordinated effort among central banks could be in the cards. See: BIS slams central banks, warns of worse crunch to come - UK Telegraph


About BIS
The Bank for International Settlements (or BIS) is an international organization of central banks which exists to foster cooperation among central banks and other agencies in pursuit of monetary and financial stability. It carries out its work through subcommittees, the secretariats it hosts, and through its annual General Meeting of all members. The BIS also provides banking services, but only to central banks, or to international organizations like itself. Based in Basel, Switzerland, the BIS was established by the Hague agreement of 1930

BIS 78th Annual Report (30 June 2008)