Children, no matter what the redistributors promise, you cannot redistribute the future before it’s been created

Sir, Martin Wolf writes: “A case can be made for borrowing for high-quality investment, especially when real interest rates are so low… But the increased spending needs to be paid for by effective and efficient taxation… What is needed is honesty: the country can choose to raise spending. But, if it wants to run a sound fiscal policy, this will mean substantially higher taxes” “Austerity is dead. Long live austerity” June 16

Honesty? Are the low real interest rates on sovereign debt for true, or are these not much a function, an illusion, caused by the regulatory subsidies to sovereigns? Does a 0% risk weight for the sovereign, and a 100% for unrated citizens, which is what the Basel Committee’s standardized risk weights establish, really mean nothing when it comes to allocating bank credit to the real economy?

Yes, it would clearly have been better to launch different “high-quality” public investment programs, than that dumb kicking the crisis can down the road program financed with Tarps, QEs and what have you.

But, just like saying “risk-weighted” does not mean it has really been risk weighted, saying “high-quality” does not signify for one moment that it will be of “high-quality”. In fact, all around the world, what we continuously see is a reduction in the capacity of governments to deliver high-quality investments. Could that be because of their 0% risk weight, they are now less forced to do so?

Wolf also writes: “a quarter of Labour’s promised increase in spending goes to eliminate student debt, while leaving universities far worse off. This is an irresponsible and regressive benefit in favour of future winners.” Here again remember, mentioning “future winners”, does not guarantee one iota the students will be the future winners.

You young, please, don’t listen to siren songs. The future, no matter what the redistribution profiteers promise you, cannot be redistributed before it’s been created.

PS. Students, If you want universities to better help you be future winners, pay them 50% of what they actually charge you, with some basis points in you future earnings.

@PerKurowski

Odious debt is often mentioned, but its origin is most often those odious credits and odious borrowings that abound

Sir, Benedict Mander, with respect to Argentina issuing debt writes: “These yields don’t exist anywhere else in the world in countries with such low levels of debt,” said [enthusiastically] Facundo Gómez Minujín, managing director at JPMorgan’s Argentina unit. “Argentina targets $30bn debt issuance” May 2.

Is that not a sign that Argentina, if it took on debt, should demand to pay less or just leave it like that?

And by the way, what has the fact that Argentina has low level of debts to do with anything? Is not debt to be contracted only if you have something really worthy to do with it, something that will allow you to repay the debt and leave some decent returns?

I do not know much about Argentina, and I do not intend any similitude, but I do know that I profoundly dislike all those who knowing how bad it was run, and how little with its huge oil revenues it should need credit, still financed the disastrous XXI Century Socialism Venezuela, only because risk premiums seemed good. Had they not done so, Venezuela could perhaps already have been able to rid itself of The Tragedy. Had they not done so, Venezuela would not, on top of all its other current mindboggling difficulties, need to add the service of totally unproductive contracted debt.

For me good governments are those who stay out of debt even if conditions seem fair, only on account that debt basically represents advance fiscal revenues, to be paid later by the next generation.

We do need a Sovereign Debt Restructuring Mechanism (SDRM) but, if it is going to produce reasonable results for the citizens, then it has to begin by defining very clearly what is odious credit and what are odious borrowings. I have sometimes argued that any public borrowing that offers to pay more than a specified number of basis points over what the best debtor is paying, could be considered as odious.

I know it is way too extreme, and has absolutely nothing to do with Argentina or Venezuela, but the question needs to be asked, so that the point I am making becomes utterly clear: Would bonds issued for the construction of the crematoria ovens in Auschwitz be included in any debt restructuring… or should these just be thrown out… or should the financiers also be judged?

@PerKurowski ©