October 09, 2015

Martin Wolf do not low rates on Treasuries depend quite lot on how these are favored by bank regulators?

Sir, its hard for me to follow Martin Wolf’s explanation of the “Reason for low rates is real, monetary and financial” “World Economy” October 9. For instance what does he mean with “The saving glut was a casual factor. But its impact came via monetary policy and the financial system, and so via financial booms and busts”

That said, since he mentions low Treasury yields that according to Andy Haldane, the Bank of England’s chief economist “are the lowest real interest rates for 5,000 years” I do have a question for him.

Mr Wolf, would it not be possible that those ultralow interest rates are supported by the fact that the least capital the capital scarce banks need to hold against assets, are those they need to hold against their sovereigns… their governments… the Treasuries?

Does Martin Wolf believe Treasury yields would be so low if bank had to hold as much capital against Treasuries than what they are required to hold against risky SMEs and entrepreneurs? I mean the current risk weight for Treasury is zero percent, while the risk weight for a private American unrated SME and entrepreneur is 100 percent.

Zero percent – 100 percent… truly amazing!

At one place Wolf mentions with respect to one explanation: “one has to argue that the crisis was just the result of foolish deregulation and wild profit seeking in an irresponsible sector”. No! I argue that it was just the result of foolish regulation that allowed profit seeking banks to earn much higher risk adjusted returns on equity on safe assets than on risky assets. But seemingly I do not express myself too clearly either, as there is no way I can be understood by Mr. Wolf.

@PerKurowski ©  J