December 14, 2016

Because of distortive bank regulations, current tax cuts will deliver much less growth than what could be expected.

Sir, I refer to George Magnus’ “New regime’s growth pledge poses challenge for the US central bank” December 14.

In it, like many other commentators, Magnus draws comparisons between current Trump/Steven Mnuchin economic plans, with the lowering of taxes, and the Reagan years. He find several differences, though again like most or perhaps all commentators, he ignores the fact that during Reagan years, there was no such thing as risk weighted capital requirements for banks that distorted the allocation of credit.

That regulation stops us from getting the most bang out for any stimulus, be it tax cuts, QEs, fiscal deficits, low interest rates, etc.

If adjusted for it, the Committee for a Responsible Federal Budget’s already worrying estimates would even seem too optimistic.

What is truly harrowing though, is that those distortions are not even discussed, as if these did not exist, as if these should not be named.

For instance I have been unable for more than a decade to get straight answers from the regulators to some very basic questions, zero contestability; and Sir, FT’s Establishment has also refused to ignore these questions, notwithstanding my soon 2.500 letters to you on “subprime bank regulations”