Nothing good can result from a credit boom that avoids risky bays and dangerously overcrowds safe havens.

Sir, I refer to Martin Wolf’s “We are trapped in a cycle of credit booms” of October 8.

If each credit boom that later results to be unsustainable, and creates sufferings, is the result of markets believing, rightly or wrongly, they found something new and profitable worthy to risk their money on, lets call those possibly productive credit boom, then at least I would not complain. That is the result of a world that wants and dares to move forward, so as not to stall and fall.

But the latest credit boom, at least the one financed by banks, has nothing of such a productive credit boom. Since regulators allowed banks to earn much higher risk adjusted returns on equity on what is perceived as safe than on what is perceived as “risky”, it is exclusively a run-to-safety boom. And, of course, nothing good can come out of not exploring risky new bays but only dangerously overcrowding safe havens.

PS. Let me remind you of that secular stagnation, deflation, mediocre economy and similar creatures, are direct descendants of silly risk aversion.