June 08, 2015

FT – IMF: Debt should be a growth hormone and not just a hallucinogen or painkiller for the après nous le deluge crowd

Sir, you refer “a financial storm [that] hit the global economy… fuelled by heedless borrowing”, “Stop worrying and learn to live with debt” June 8.

Clearly bank regulators are FT’s protégées. The heedless lending that was fueled by ultralow capital requirements for banks was what caused the financial storm’s excessive borrowings.

And now you praise a recent IMF paper that says “most countries can relax: debt ratios should be allowed to decline “organically” with growth, or through opportunistically pocketing windfalls.”, based on the argument: “Cutting debt requires higher taxes or less public investment, both at the expense of economic efficiency”

Sir, what certain link is there between public investments and economic efficiency? Sir, are there not plenty of public sector spending savings that could be done in order to increase economic efficiency?

Had baby-boomers bit the bullet in 2007-08, and accepted the losses without pushing the can down the road with Tarp, QEs and fiscal deficits, they would have suffered some quite hard times, but the deck would be cleared for the next generation to have a go.

That of course, as long as we got rid regulator’s silly aversion against banks lending to SMEs and entrepreneurs, only because these are perceived as risky, all as if bankers are blind children unable to perceive those risks.

That of course, as long as we got rid of communist or statist regulator’s who with their zero risk weight for government borrowing tell us they believe government bureaucrats can use bank credit more efficiently than a SME or an entrepreneur.

That current generations should relax about the debt, and let it “decline ‘organically’ with growth, or through opportunistically pocketing windfalls (like winning a lottery), in order to remain on easy street, expresses a shameful après nous le deluges attitude.