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The BIS said cross-border loans fell by $52 billion in the first quarter, chiefly due to deleveraging by Chinese companies. It estimated that capital outflows from China reached $109 billion in the first quarter, a foretaste of what may have happened in August after the dollar-peg was broken.

China and the emerging economies were able to crank up credit after the Lehman crisis and act as a shock absorber, but there is no region left in the world with much scope for stimulus if anything goes wrong now.

The venerable BIS — the so-called “bank of central bankers” — was the only global body to warn repeatedly and loudly before the Lehman crisis that the system was becoming dangerously unstable.

Bond guru said the Federal Reserve has waited so long to raise interest rates that any move now may be labelled ‘too little too late’ as market turmoil restricts the room for policy makers to act.





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It has acquired a magisterial authority, frequently clashing with the International Monetary Fund and the big central banks over the wisdom of super-easy money.

Mr Borio said investors have come to count on central banks to keep the game going but this engenders moral hazard and is ultimately wishful thinking.

“Financial markets have worryingly come to depend on central banks’ every word and deed,” he said.

A disturbing feature of the latest scare over China is a “shift in perceptions in the power of policy”, a polite way of saying that investors have suddenly begun to question whether the emperor is wearing any clothes after all, following the botched intervention in the Shanghai stock market and the severing of the dollar exchange peg in August.