August 22, 2014

“More safe assets” might just quite dangerously signify too much safe assets.

Sir, I refer to Tim Harford’s “Low inflation targets becalmed our economies” August 22.

Harford writes “Low real rates suggest lots of people are trying to save, and particularly in safe assets, while few people are trying to borrow and invest” and that “regulators (understandably) insist that banks and pension funds hold more safe assets”.

Labeling it as “understandably”, Harford seems to miss the possibility that “more safe assets” could and does most likely signify too much safe assets. If our banks, those who have usually played the role of designated risk-takers, standing in for us much more risk adverse citizens, are by means of the risk-weighted capital requirements given incentives to also avoid risk, there is no way we can have anything but secular stagnation.

PS. FT reporters... dare to ask The Question!