January 23, 2015

Sadly small businesses, entrepreneurs, and unemployed, have little reason to celebrate ECB’s/Draghi’s QEs.

Sir, Martin Wolf divides the opposition to ECB’s/Draghi’s QEs into those who think this “takes the pressure off governments to deploy expansionary fiscal policies” and those “who think QE is close to being an invention of the devil…hyperinflation… and that it will lift the pressure on governments to [structural] reform”, “Draghi’s bold promise to do what it takes for as long as it takes” January 23.

Wolf does so mainly because he believes that “the eurozone did not fall into a slump because supply-side problems suddenly became worse. It faltered because demand collapsed.”

I don’t think so. I am certain that had it not been for the Basel Accords credit-risk-weighted capital requirements, made worse by means of some ideological weightings in favor of government borrowings, the preceding debt-fueled anticipation of consumption boom might not have happened, but neither the “slump”.

Why is it so hard for Martin Wolf to understand that if banks had to hold as much equity against assets like loans to sovereigns, AAArisktocracy and real-estate, than what they are required to hold when lending to the “risky” small businesses and entrepreneurs, all our economies would be much sturdier.

In July 2012 Martin Wolf wrote: “Per Kurowski, a former executive director of the World Bank, reminds me regularly, crises occur when what was thought to be low risk turns out to be very high risk." And yet he does not comprehend what I really meant with that, namely, if so, then… how risky can a borrower perceived as risky really be?

I perfectly understand why the markets and asset holders celebrate Draghi’s announcements. I just wish it were the small businesses and entrepreneurs, and consequentially the unemployed, who had the real reason to celebrate.

Getting rid of those odiously discriminating and distorting credit risk weighted equity requirements for banks and having the ECB put the €1tn in as temporary equity in Europe’s banks, well that would be something really bold, and something which all could celebrate.