US Government’s Treasury Department Arm warns on Heightened 'Financial Stability Concerns'

More example of what  I call as:  global political or mainstream institutions or establishments, CANNOT deny the existence of bubbles anymore. So their recourse has been to either downplay on the risks or put an escape clause to exonerate them when risks transforms into reality

A new research outfit from the US government’s Treasury Department raises concerns of the swelling risks from liquidity crunches and ballooning debt

From the Wall Street Journal: (bold mine)

The U.S. financial system is growing more vulnerable to debilitating shocks as new regulations and market forces change trading habits and make some market participants less willing to smooth out volatility, a government watchdog warned.

The Office of Financial Research, a new arm of the Treasury Department created by the 2010 Dodd-Frank law, said the system is vulnerable to repeats of what occurred in October, when tumult in the trading of U.S. Treasury securities spread broadly to futures, swaps and options markets.

“Although the dislocation that peaked in mid-October was fleeting, we believe there is a risk of a repeat occurrence,” the office said in its third annual report, adding that such volatility “raises a host of financial stability concerns.”

The report highlights concerns that have been simmering for more than a year related to a decline in liquidity, or the ability of market participants to buy or sell securities quickly at a given price. The worry is that without enough liquidity, price swings could become more severe across financial markets, raising the cost of credit on Wall Street and Main Street. The report said such swings could be exacerbated by computerized trading and algorithms, as high volumes of transactions are executed automatically, deepening instability.

Reasons cited: regulations and rapid expansion of credit

One reason for the decline in liquidity is that banks are less willing to facilitate trading as new regulations make lending cash and securities more expensive. Regulators have said the rules are necessary and will reduce the kinds of excess borrowing that fueled the 2008 financial crisis…

Reduce excess borrowing? Really? But they also say otherwise...

The report cited other risks that have been previously identified by the Fed and other regulators. They include a “rapid expansion in corporate credit” that is being extended, increasingly, by nonbank entities that remain outside the reach of regulators. A sudden rise in interest rates—long a concern of the Fed and other financial-system overseers—also was cited as a risk as the Fed inches closer to ending a prolonged period of low rates. The report said a typical U.S. bond mutual fund is holding longer-duration bonds today compared with a year ago, which could swing into the red if interest rates suddenly rose and the bonds became less valuable.

Low interest rates fueling debt based asset inflation—so what else is new? 

Hasn't stocks been predestined to rise forever in fulfillment of politics induced G-R-O-W-T-H from quasi boom policies?