A sobering analysis by the world's central bankers...

The Bank For International Settlements (BIS) is the central bankers' bank. Its Annual Report is an ideal forum in which central bankers can voice concerns they aren't able to express as openly as individuals. The BIS's just published 2014 Annual Report makes for sobering reading. Here are some of the major concerns...

--New asset bubbles are forming -- and the global economy hasn't even fully recovered from the excesses of the financial crisis! With interest rates at record lows, investors aren't paying much attention to risk. Consequently, weak borrowers are able to issue debt at surprisingly low rates, given their underlying fundamentals.
   Does this remind you of the heady days before the PIIGS crisis? The head of the BIS's monetary and economic department said "There is a disappointing element of deja vu in all this... The signs of financial imbalances are there." According to the Annual Report, debt levels in many emerging markets and in Switzerland "are well above the threshold that indicates potential trouble."

--It could be a few more years before the the world recovers from the financial crisis. Europe could experience an especially slow recovery because of high debt levels: "During the boom, resources were misallocated on a huge scale and it will take time to move them to new and more productive uses", according to the text of a speech by the General Manager of the BIS, Jaime Caruana, a former Governor of Spain's central bank. 

--Governments need to take measures to improve their economies, including improving labor mobility. The governments of countries that are growing rapidly need to watch out for overheating.

--There were admonitions for the private sector as well. Banks should raise more capital, both as a cushion against risk and to deal more quickly with portfolio problems. That corporates haven't taken advantage of the boom in stock prices to increase investment is one reason productivity gains have slowed in most developed economies: "Instead of adding to productive capacity, large firms prefer to buy back shares or engage in mergers and acquisitions." 

The BIS sends this message: "...a growth model that relies too much on debt, both private and public, ... over time sows the seeds of its own demise."