Malaysia Sun | July 1, 2008

The Bank for International Settlements has warned the world to brace for a severe economic downturn.

Last year, BIS gave a pre-warning about the growing risks of inflation when the inflation level was still reasonably low.

In its latest annual report BIS has gives a more grim assessment, suggesting the magnitude of the world’s economic problems could be about to expand even further.

BIS pointed to a deeper and more protracted global downturn than the consensus view had expected.

It especially cautioned against using rate cuts to bail out the world economy, arguing that loose monetary policy helped cause the mess in the first place.

The report said the world could be facing one of the biggest crises for the last 150 years due to central banks using loose monetary policy and low interest rates to bail themselves out of every crisis since 1987.

BIS also noted parallels between the current financial turmoil and the great economic woes of modern history, including the Great Depression of the 1920’s.

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