Most of our resilience capacity has been spent, for no particularly good or sustainable reason

Sir, I refer to Ludger Schuknecht’s “What bankers can teach stimulus-addicted economists” October 6.

Schuknecht writes: “In too many countries debt and public spending are high, and interest rates close to zero… Yet, after decades of attempts to fine-tune the economic cycle by running fiscal deficits and cutting interest rates at times of weak demand, many economies are fragile”

And I ask…why? Could it have something to do with credit risk weighted capital requirements for banks that stops banks from financing the tough we need to get going when the going gets tough… like “risky” SMEs and entrepreneurs?

Schuknecht writes: What governments save, because debt service costs are low, they often spend. Public debt in many countries is now well above 100 per cent of gross domestic product. This would have been unthinkable a decade ago.

And I ask… could it have something to do with this? In November 2004 in a letter published in FT I wrote: “I wonder how many Basel [bank regulation] propositions it will take before they start realizing the damage they are doing by favoring so much bank lending to the public sector.”

Schuknecht writes: In too many countries debt and public spending are high, and interest rates close to zero. This leaves little room for effective policy when the next crisis hits — as it surely will.

And I fully agree: Indeed we have spent up most of our resilience capacity… for no particularly sufficiently good and sustainable purpose. 

@PerKurowski ©  J