September 13, 2016
Sir, Martin Wolf writes: “The determinants of the secular decline in the real natural (or neutral) rate of interest are forces affecting the supply and demand for funds. These include ageing, slowing productivity growth, falling prices of investment goods, reductions in public investment, rising inequality, the “global savings glut” and shifting preferences for less risky assets” “Monetary policy in a low rate world”, September 14.
Not a word about the risk weighted capital requirements for banks. These have created regulatory incentives for banks to avoid, much more than usual, any riskier assets, like loans to SMEs and entrepreneurs, and to concentrate, much more that usual, on assets that are perceived, decreed or concocted as safe, like loans to the Sovereign and to the AAArisktocracy. And that has to slow the growth of productivity and cause the real economy to stall and fall.
That motorcycling is perceived as much more riskier, and that precisely because of that, more people die in car accidents, is a reality that neither our current bank regulators nor Martin Wolf can seem to understand, confused as they are by what is ex ante and what is ex post risks.
Like Lawrence Summers Wolf opines “Today’s remarkably low real interest rates mean that a big push on public investment has never been more opportune.”
Yeah, yeah trust more in government bureaucrats than in the “risky” private sector, and leave the bill to future generations.