Central banks that only want banks to harvest what’s “safe” and not sow what’s “risky”, do not deserve any credibility

Sir, you write “central banks have resorted to ever more ingenious methods to convince a sceptical public that they still have the ability to create inflation”, “The growing challenge to central banks’ credibility” September 24.

Excepting those loving the current inflation in the values of assets, what sceptical public do you identify as wanting the core goal of central banks to be achieving higher inflation?

And as for their tools to obtain that “core goal” you mention the failures of QEs and low interest rates, and seemingly want them to dig deeper into negative interest rate territory.

No Sir! Any central banker that does not speak out against the risk weighted capital requirements for banks, that which have banks only refinancing the safer past and not financing the riskier future, do not deserve any credibility. Moreover they should be publicly shamed.

PS. Not only criminals and tax-evaders, but also ordinary people can beagainst restrictions on cash

@PerKurowski ©

The rating agencies credibility is not a result of any market

Sir Paul De Grauwe is right suggesting to alert the investors with a label that says “Warning: rating agencies can do you harm” January 23; as you know I have been advocating precisely that for years. But, when De Grauwe expresses surprise that the rating agencies are still around, even after having failed so miserably, he forgets that who put them in power and keep them there were the financial regulators and not the market. As long as “if they’re good enough for the Basel Committee they’re good enough for you” reigns, the markets cannot free themselves from these dangerous agents of systemic risk.

http://teawithft.blogspot.com/2007/08/we-need-to-attach-warning-message-to.html

Austrian surgery or Keynesian chemotherapy?

No Sir FT should not get away answering “Is your recession really necessary? January 2009 by painting a simplistic picture of some evil Austrian forces wanting to castigate the world by dragging down the economy into the doldrums of a severe and disciplining recession and an enlightened Englishman who understood that “in a crisis, demand would not necessarily fall back to the sustainable level”. What is happening is much too serious for that.

Our current alternatives are more like having to choose between Austrian surgery and Keynesian chemotherapy. Only as an example I would much prefer to cut out all the financial fatty tissue that was created like by magic when the subprime mortgages moved up to the Triple-A world, than use a general chemotherapy that can leave us so weak with masses of public debt and that could have us fall into a final coma.

Having said that, before any type of intervention, the patient needs to recover the will to live and that depends on us being able to explain to him in a credible way the full extent of his illness and its treatment. As an economic doctor I would start telling the patient about the sacrifices he will have to make, for instance the higher taxes he will have to pay, because the whole story of stimulus packages, tax rebates and expecting rational behaviour modification from the same financial regulators that got us into this mess, sounds too much of a tall tale to inspire any sort of confidence.

If I was Obama I would in the first 100 minutes of my presidency use my political capital to announce a one dollar per gallon of gas tax. That would absolutely sting a lot but that would also help the patient to believe that there is a rational way out and that someone is willing to go down that path.