Government spending should be based on transparent tax revenues, not on regulatory scheming.

Sir, Lawrence Summers’ admonishes to “Only raise rates when the whites inflation’s eyes are visible”, February 9. Since inflation is such a fuzzy variable, no one can be really sure though about what we are seeing when the whites of its eyes are not visible.

But one thing is for sure; Government’s do not deserve the current low interest rate on their borrowings… that is a hidden tax.

It is urgent we eliminate those risk-weighted equity requirements for banks which translate into a tax on the borrowings of small businesses and entrepreneurs, and a subsidy of the public sector’s. That leads to something much worse than deflation, namely to highly ineffective allocation of bank credit.

It all started when innocent foolish technocrats, or dangerous terrorists, with the Basel Accord, came up with the idea that banks needed to hold much less equity against loans to their governments than to citizens. That translated into requiring banks to hold much less equity against loans to be managed by bureaucrats not subject to such limitations as having to feel the money as theirs, than against loans in the hands of small businesses and entrepreneurs.

That was, de facto, to invite communism to come in through the backdoor. And so, if we need to keep interest rates low in order to stimulate the economy, let those apply to all and not especially to the public sector.