Columbia International Affairs Online: Policy Briefs

CIAO DATE: 05/2009

Tipping Point

John H. Makin

August 2008

American Enterprise Institute for Public Policy Research

Abstract

The annual report of the Bank of International Settlements (BIS)--the central bankers' central bank--which appeared in late June, was somewhat schizophrenic. On the one hand, the BIS called for world interest rates to rise in order to deal with a "clear and present threat" from global inflation while, on the other hand, it warned that the global economy may be close to a "tipping point" into a "slowdown severe enough to transform the current period of rising inflation into a period of falling prices." The simultaneous rise in oil prices and the fall in yields in government securities occurring as the BIS released this ambivalent statement captured well the tensions inherent in the stagflationary crosscurrents facing the global economy. Against this ominous background, the release of the BIS report coincided with the onset of a global bear market in equities.