July 30, 2014

No Mr. Robin Harding. Fear of risks, dooms the economy to stagnation.

Sir, if I understand it correctly, Robin Harding wants us to pick one of two possibilities. That in which “the interest rates are too low, but the economy is fundamentally healthy, or the bleak one, in which case “central bankers have written the right prescription, but the patient´s condition remains perilously weak”, “Fear of bubbles hides the dangers of stagnation”, July 30.

Not so Mr. Harding! Fears, by regulators, of banks lending too much to what is perceived ex ante as risky, as if such a thing has ever happened, has doomed the world to stagnation. When banks, by means of risk weighted capital requirements are told they can earn much higher risk-adjusted returns on equity when lending to what is perceived as absolutely safe, there will not be the sufficient lending to what is perceived as risky, like SMEs and entrepreneurs, for the economy to grow.

No risk-taking... no growth... it is as simple as that!