December 13, 2012
Sir, on your front page of December 13, we read about Ben Bernanke announcing “The US Federal Reserve is expected to keep its rates at close to zero until unemployment falls below 6.5 percent”.
Excuse me Mr. Bernanke: Interests at close to zero for whom? For those for which banks can lend without holding much capital, “The Infallible”, triple-As and the sovereign, that might be true. But for those banks are required to hold many times more capital against, like all borrowers that do not have a credit rating or do not have a top credit rating, "The Risky", like small and medium businesses and entrepreneurs, some truly important job creators, that is certainly not true. The fact is that the real risk adjusted interest rate differential between “The Infallible” and “The Risky” must be widening by the minute, as bank capital grow scarcer and scarcer, as some of "The Infallible" ex-post join "The Risky"
And since according to the regulators the most infallible of them all, is the Government, and would therefore be the one receiving more and more of these “close to zero interest” funds, it would seem that the only way we will be able to have unemployment to fall below 6.5 percent is by creating public sector employment. Is this the unstated objective? If so, that is not very transparent.