December 19, 2015

Let’s call on the Ghosts of Economies Past, Present and Yet To Come, to illuminate our central banks and regulators.

Sir, Tim Harford showing good Christmas spirit praises both the miser deflationist and the spending inflationist. “In praise of Ebenezer Scrooge”, December 18.

Harford writes: “In a deep recession, one might be concerned that Scrooge was failing to support aggregate demand but in normal economic times the effect of his skinflintery was to ensure that everyone else was able to enjoy a little more.”

Does Harford mean by that that the messaging by the three Ghosts of Christmas needs to be harmonized with central bankers? I ask because I am not really sure central bankers have enough of an intelligent Christmas spirit to be able to cooperate.

For instance, with respect to bank regulations, by agreeing with that banks should be able to leverage more when lending to the “safe” than when lending to the “risky”, central banks don’t mind that the risk adjusted net margins paid by the safe, are worth much more than those same margins paid by the risky. I am absolutely sure Ebenezer Scrooge would never discriminate like that, he would always lend to whoever paid him the highest exorbitant credit risk adjusted rate, no matter who paid it.

Perhaps we need to invoke the Ghosts of Economies Past, Present and Future in order to enlighten our bank regulators that good economies are never ever the result of credit risk aversion since they always come as a result of embracing risk. Hopefully the risks taken by banks are based on reasoned audacity. But, even if that’s not the case, and some banks fail, it is still much better when bankers dare jump and finance the risky future, and do not stay in bed, like now, just refinancing the safer past… developing constipation, bedsores, weak bones and muscles and other illnesses, like that which produces a chronic lack of job for our young (and old).

Finally Harford does well reminding central bankers who think the economy will respond to their ultra-low interest rates and QEs, that Scrooge, when finally embracing the Christmas spirit, “didn’t waste his money on demonstrative extravagances for people whose desires he didn’t really understand.

@PerKurowski ©