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By Ambrose Evans-Pritchard

The global economy is caught in a permanent trap of boom-bust financial cycles, a deformed structure becoming ever more corrosive and dangerous as debt ratios rise to nosebleed levels, the world’s top monetary watchdog has warned.

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The Bank for International Settlements said the rot in the global monetary system has not been cut out since the Lehman crisis in 2008. The current, now ageing cycle could finish in much the same explosive way, contrary to the widespread belief that the financial crisis of 2008 was a once-in-a-century event caused by speculators.

“The end may come to resemble more closely a financial boom gone wrong, just as the latest recession showed, with a vengeance,” said Claudio Borio, the BIS’s chief economist.

The end may come to resemble more closely a financial boom gone wrong Claudio Borio, chief economist

The venerable Swiss-based BIS said the financial system was about to be tested as the U.S. Federal Reserve stepped up the pace of monetary tightening. A decade of ultra-loose money had kept the lid on debt service costs and masked risk.