September 09, 2016
Sir you write: “Mr Draghi is justified in claiming that the ECB’s stimulus is working…[though] growth remains well below the level needed to drive sustained improvements in living standards.” So you basically egg Draghi on, just as you egg on governments to spend more of what they don’t have. “Draghi’s fight to uphold the ECB’s credibility”
Come on, the ECB has now after 18 months of aggressive bond buying, injected 1 trillion euros in cash into the economy… about 10% of the Eurozone’s GDP, and yet very little real sturdy sustainable economic growth has resulted. Don’t the technocrats ask themselves why?
Seemingly not; perhaps because that would require them to face that nightmarish possibility that the risk weighted capital requirements for banks, that regulation to which so many of them are closely associated to, is exactly as stupid as I have been telling them for way over a decade.
Mario Draghi is the chair of the Group of Governors and Heads of Supervision of the Basel Committee, and was the Chair of the Financial Stability Board. It is clear he would see his professional reputation severely tarnished by having to recognize publicly such simple facts of life that what is perceived as risky is, most often, much less dangerous than what is perceived as safe... and that therefore the Basel Committee’s bank regulation pillar, makes absolutely no sense.
The current credit risk weighting of the capital requirements for banks, hinders monetary and fiscal stimulus from reaching the risky SMEs and entrepreneurs, those who most could want and need the resources, those who most could do some real growth with those resources.
Sir, no matter how much runaway statists insist, it is just not true that the zero percent risk weighted sovereign bureaucrats know better how to deploy bank credit efficiently, than our 100% risk weighted private sector SMEs and entrepreneurs. Get off my cloud!