Are we heading into the next financial crisis?

A CENTRAL economic question of our time is whether the policies undertaken to recover from the last financial crisis are laying the groundwork for the next. We now have two reports from reputable groups suggesting just that.

The first comes from the Bank for International Settlements (BIS), which was created in 1930 to handle reparations payments from World War I - reparations that were soon cancelled. The BIS is now a major source of economic research and statistics. Recently, it has acted as the loyal opposition to the easy-money policies adopted in the United States, Europe, Japan and elsewhere. Its just-released annual report continues its dissent.

The BIS critique goes like this. Low interest rates have sustained the recovery, but the support is fragile. The economy relies too much on debt, which cannot build forever, and artificially high asset prices (stocks, homes, bonds) may someday tumble from unrealistic levels. A new crisis could be severe because governments have already deployed their standard anti-recession tools: cheap credit and big deficits.