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World financial outlook grim: agency -

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TONY JONES, PRESENTER: One of the world's key economic agencies is warning that the world may be
facing one of the worst financial catastrophes in history. The Swiss-based Bank for International
Settlements draws a parallel between the current financial meltdown and the Great Depression.

it says the problems are worse than most authorities perceive, and it criticises central banks for
allowing the crisis to happen.

Economics correspondent, Stephen Long, reports.

STEPHEN LONG, REPORTER: Central bankers might be talking down the crisis, but not the authority
they report to. In its latest annual report released tonight, the Bank for International
Settlements gives an assessment that's candid and grim.

DICK BRYAN, ASSOCIATE PROFESSOR, UNIVERSITY OF SYDNEY: Stephen, It's a big statement that the world
economy could potentially be facing one of the biggest crises for the last 150 years.

SATYAJIT DAS, AUTHOR AND RISK ANALYST: It's an extraordinary statement of how close the world is to
a total financial meltdown.

STEPHEN LONG: Amid warnings that Australia's housing market could go the way of America's

JONATHAN PLAIN, ECONOMIST, HFA ASSET MANAGEMENT: Well in fact I do, very sadly. I think we could
see a 20 to 25 per cent decline in residential house prices here in Australia over the next several
years.

STEPHEN LONG: The Bank for International Settlements says worldwide inflation and the risk of
recession mean fears are building that the global economy might be at some kind of tipping point.
These fears are not groundless. It says the global consensus is wrong and underestimates the
problem, warning: "The facts suggest that the magnitude of problems to be faced could be much
greater than many now perceive ... while difficult to predict, their interaction does appear to
point to a deeper and more protracted global downturn than the consensus view seems to expect."

SATYAJIT DAS: The statements in here are talking about comparisons to the 1920s Depression and it
is actually pointing fingers at central banks and their policies and their misunderstanding of how
the financial system works and their love of things like innovation and the newfangled themes that
have brought the world to the precipice of what could be one of the most major financial
catastrophes in the history of economics.

STEPHEN LONG: And it criticises the world's central banks for not putting a stop to the credit
excesses that led to the crisis.

DICK BRYAN: They're telling central banks really they got it wrong.

SATYAJIT DAS: Central bankers and central bank economists don't normally share such candid
assessments of each other.

STEPHEN LONG: This is one of the bleakest assessments to date.

Stephen Long, Lateline.