October 15, 2012

Suppose two equal deep recessions, two equal huge stimulus, but two different capital requirements for banks… same multipliers?

Sir, with respect to Wolfgang Münchau’s discussion of multipliers, “Heed the siren voices to end fixation with austerity” October15, I would like to ask him the following question: 

Suppose two countries, same deep recession, same huge stimulus but two different bank regulations. In the first capital requirements for banks when lending to The Infallible are many times smaller than when lending to The Risky. In the second the capital requirements are the same for lending to both groups. 

Does Münchau’s really expect the multipliers to be the same in both countries? 

What is this fixation on wanting to end austerity in terms of injections to the economy, and not wanting to even talk about ending the risk-taking austerity of bank regulations that nullify those injections?