The pricing distortions by QEs are leveraged manifold by the regulatory distortion of bank credit.

Sir, Scott Minerd holds: “But in the long run, classical economics would tell us that the pricing distortions created by QE will lead to a suboptimal allocation of capital and investment, which will result in lower output and standards of living over time” “QE likely to impair living standards for generations” March 26.

And Minerd writes: “The long-term consequence of the new monetary orthodoxy is likely to permanently impair living standards for generations to come while creating a false illusion of reviving prosperity.”

It is so much worse than that:

The long-term consequence of the new bank regulatory orthodoxy, that of weighing equity requirements for perceived credit risk, is going to permanently impair living standards for generations to come, while creating a false illusion of making our banks safer.

It is regulating in favor of what is perceived as safe and against what is perceived as risky, as if what’s “safe” is not already benefitted and as if what’s “risky” does not already suffers. That has introduced the mother of all distortions in bank credit allocation… which blocks much of the liquidity provided by QEs to reach what it should reach…and... this is not even an issue!

And all that does it not help to make our banks safer? Of course not! What is perceived as risky is never threat to the banking system, only what is perceived as “safe” is.

@PerKurowski