(James Saft is a Reuters columnist. The opinions expressed are his own)
By James Saft
(Reuters) – What happens when credit conditions are far too loose, the banking system is fragile and interest rates start to rise?
Yes, I know you have heard this joke before, and yes, I know it is not funny.
The Bank for International Settlement’s quarterly review of financial conditions is an exercise in nightmarish déjà vu: familiar to those who watched the last crisis but just different enough to be plausible. (here)
Not only are credit markets so loose that comparison with pre-Lehman Brothers days are fair, but this is happening within a context in which investors, on the whole, don’t really have faith in the strength of banks.
This implies that if interest rates start to rise, and recent data and rumblings from central banks indicate they may, a reckoning of some kind will be at hand.
So how loose is credit?
“What is happening in corporate markets is unusual. It is as if the typical relationship with the macroeconomy has taken a holiday,” Claudio Borio of the BIS said at a press conference.