Would US Treasuries been safer, had there been no debt-roof discussions, just business as usual?

Sir, John Plender holds that as a consequence of the “debt-ceiling imbroglio”, and the recent partial closure of US government, “that anyone who can diversify out of US Treasuries will now feel impelled do so as far as possible.” “Treasuries have turned anything but risk-free”, October 23.

If Plender implies that had only the US just gone on lifting the debt-roof of which it has to jump off, sooner or later, and kept on spending as usual, while there is no tapering of the QE, and all without even a discussion, that then the US treasuries would be safer, I do not agree. That is not what “a responsible custodian for more than 60 per cent of the world’s official reserves” should do.

But that there are reasons to diversify, on that there is little doubt. The doubts are with respect to, diversify into what? Though Plender mentions China’s rising to challenge US hegemony, I do not think he is seriously thinking about putting his savings in Chinese banks. Could Plender have gold in mind?

Wolf, when spinning the US debt ceiling in favor of the spender, do not forget there is also a roof to get off.

Sir, Martin Wolf might be entirely correct when describing some of the possible horrible consequences of the US debt ceiling not being increased, but he is sure spinning the issue entirely in favor of the spender, “The debt-ceiling doomsday device” October 16.

I find the US Congress having to approve a debt ceiling, which is the same as a debt-roof from which the US has to get off from, sooner or later, to be something perfectly valid. When spending bills are presented, these are not “whatever it takes” spending bills, but spending which assumes some type of income. And, for the case those income assumptions are not met then any congress, as any corporate board, should have all the right to say… “Great! But as long as you do not take on more debt than x”.

And what would the markets be saying if all been smooth sailing for the US executive branch to take on any debt it wanted… would that not spook these even more?

PS. As for me, as Martin Wolf knows well, I am much more concerned with the shutdown of access to bank credit for the "risky" real economy, which regulators ordered with their dumb capital requirements for banks based on perceived risk.

How does Italy break out of bank regulations which are slowly but surely shutting down its real economy?

Sir, I refer to Wolfgang Münchau’s “Italy’s chance to realign – or mess things up further” October 7. There Münchau states that, in Italy, “The most urgent task is to fix the banks. Without credit growth, there can be no sustainable recovery. The overindebted and undercapitalized banks have loaded up on Italian government bonds instead of lending to the private sector”.

Unfortunately, as that is a direct result of regulations which require banks to have about 8 percent in capital when lending to the private sector, but allow for zero capital when lending to the public sector, there is very little Italy and Enrico Letta can do about it. That is unless they distance themselves completely from the creators of this stupidity, the members of the Basel Committee and the Financial Stability Board.

Of course the fact that Mario Draghi was one of scientists, who failed in the laboratory, does not make it easier for a country that also depends on the support of the ECB.