Before allowing more fiscal deficits we need the wimpy baby-boomers to move out and let the future take over.
Sir, Martin Wolf writes about “The sad record of fiscal austerity”, “Tens of millions of people are suffering unnecessary hardship. It is tragic” February 27.
Indeed, he is right, but, you do not consume scarce fiscal space if you had not corrected what has caused the problem, and that has not happened. Most probably because as Albert Einstein said it “no problem can be solved from the same level of consciousness that created it”
Specifically Martin Wolf includes among the major changes required: “The banking sector must come clean on losses and accept recapitalization so that it starts lending again” and repeats the mantra of “government must recognize that current rates of interest provides a once in a lifetime opportunity for higher investment”.
What bank lending? The same type of lending that caused the crisis? Bank lending to “The Infallible” where banks are allowed to leverage the most their capital? Forget it! If the regulatory distortion that different capital requirements based on perceived risks creates is not eliminated, new carb-fat-rich and protein-poor bank lending will not help. Those we most need for banks to lend to at this moment, “The Risky”, are those who regulators are giving the banks all the incentives in the world to stay away from.
And what low current interest rates on public debt? Those rates are subsidized, precisely by bank regulations that especially favor any “infallible sovereign debt”. If to those rates you add the hidden tax other more risky bank borrowers need to pay in order to compensate for not being treated as favorably, and all the opportunity costs because of “The Risky” not having an equitable access to bank credit, then they might not be low at all.
No! What we must first realize is the sad record of risk-taking austerity imposed by wimpy baby-boomer bank regulators, and which day by day increases the gap between the past, the old, the haves, “The Infallible” and the future, the new, the have nots, “The Risky”.
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