In the Fed, more than Trading Floor experiences, we need Main-Street experiences.

Sir, Mohamed El-Erian writes “Let’s not forget some market participants’ growing interest in modern monetary theory, including the view that persistently low yields enable higher central bank financing of government deficits. But such comfort risks being short-lived.” “Attacks by Trump risk damaging the Fed’s credibility”, April 12.

El-Erian leaves me a bit confused. Does he think the “modern monetary theory” could be any source of comfort even if short lived? I myself consider it a prime example of a dangerous fake theory, probably concocted by redistribution profiteers, and that because it offers such an “Easy Street” has simply gone viral. If we had any respect for Edmund Burke’s holy intergenerational bond, we should all do our utmost to destroy it.

Then El-Erian speaks of the need of the Fed to have a “‘feel’ for markets — that is… officials on the Federal Open Market Committee who have been properly and comprehensively exposed to operational responsibilities on trading floors.”

He is surely right that some of the members of FOMC should have that experience but, even more important than that is the experience from Main-Street, like when entrepreneurs want to access bank credit. 

Had there been just one single of those in the Fed, he would most surely have asked: “Colleagues, why do you set the risk weighted capital requirements higher for that which is perceived as risky, and which precisely therefore have such difficulties getting credit from the banks, and so therefore are quite innocous to our bank system?” 

Had that question been posed with enough firmness in requiring a clear answer, the 2008 crisis would not have happened and the world would definitely look better than now.

@PerKurowski

Risk adverse bank regulation, anathema to a “Home of the Brave”, has imposed a curse of slow growth on the US economy

Sir, you write: “With every month that passes, the decision of the Fed’s open market committee (FOMC) to raise interest rates in December looks more like a mistake. The US economy clearly decelerated around the turn of the year” “The curse of slow growth afflicts the US economy” April 30.

That increase you refer to is was from 0.25% to 0.5%. Frankly, no matter what it could have signaled to the markets, to believe such minimum minimorum rate increase plays any major role in the difficulties the US has reigniting its economy without huge fiscal or monetary stimulus, seems, excuse me, quite dumb to me.

Much more importance play the risk weighted capital requirements for banks, which have introduced, in the Home of the Brave, a credit risk aversion that seriously distorts the allocation of bank credit to the real economy.

If you need an aide memoire about how idiotic that regulation concocted by the Basel Committee here is one

@PerKurowski ©

Gauging the level of understanding of Fed statements assumes, kindly, Fed understands what it writes. Does it?

Sir, Tracy Alloway tackles the issue of “Why Fed statements have become literally harder to read” November 29, which generously assumes that the Fed understands what it writes. Can we be so sure of that?

One of the most important documents of our time is the Explanatory Note on the Basel II IRB Risk-Weight Functions issued by the Basel Committee; as with it the regulators try to explain what they are betting all of our banking system on. And, that document is such a mumbo jumbo, that the only thing I can conclude is that none of the experts and not-experts who read it understood one iota of it, and therefore did not dare to question it.

And so seemingly the rule is that the more complicated a document is, the less the chances it will be questioned. And the add-on to that would be, the more expert an expert think he is, the less likely he will confess not understanding something.

Therefore friends, given that FOMC statements currently “require reading grade levels of 18 to 19 to understand” hold on to your hats, someone might want to hide something, and we might soon be in to suffer the Chinese curse, I refer of course to that of “May you live in interesting times!”

Basel Committee and Financial Stability Board: “Beware, beware, walk with care, care for what you do, or Mumbo-Jumbo is going to hoo-doo you, or Mumbo-Jumbo is going to hoo-doo you, boom le boom le boom le boom!”… and hoo-doo our banks, and hoo-doo us. Please, we are NOT expendable!