Jaime Caruana: "Nobody invested in stocks seems prepared for central banks to raise interest rates"

Jaime Caruana, Chief of the Bank of International Settlements (BIS), the international finance watchdog, warns that debt mountain puts global economy into worse state than before 2008 crash.

In an interview with the Daily Telegraph Caruana says that the global economy is more vulnerable than it was just before Lehman Brothers collapsed, citing even higher debt ratios and emerging market involvement. Banks get accustomed to ‘easy money’ and ignore the risk of monetary tightening, as most major central banks including the UK, US and Japan are holding rates at around zero percent. That is boosting stocks, because there is no point in investors keeping their money in savings accounts at such low returns.

“Markets seem to be considering only a very narrow spectrum of potential outcomes. They have become convinced that monetary conditions will remain easy for a very long time, and may be taking more assurance than central banks wish to give,” Caruana says.

As most major central banks including the Bank of England and the US Federal Reserve are holding rates at around zero percent, investors leave savings accounts due to insignificant returns. That boosts a looming "irrational" stock bubble Caruana said, without specifying when the bubble will burst.

Since 2008 the emerging markets have gained around $2 trillion in foreign currency debt, becoming a way bigger player than they were during the East Asia crisis of the late 1990s.

“The ramifications would be particularly serious if China, home to an outsize financial boom, were to falter," the BIS said.