October 12, 2016

Could BoE’s bank regulation risk weights for the infallible UK sovereign also have to go negative; from 0% to -20%?

Sir, Martin Wolf writes that “The government will learn about the limits of sovereignty in an open economy” “The markets teach May a harsh lesson” October 12.

What a surprise? I thought that someone like Wolf, who seems to agree with the concept expressed by the Basel Committee of a 0% risk weight for the sovereign, and a 100% risk weight for We the People, would not doubt the powers of the infallible sovereign this way.

Jest aside, an “Open Market” does not currently exist. In such market regulators would not be able to distort the allocation of bank credit as they do.

A very nervous Wolf writes: If “the inflows of capital needed to finance the UK's huge external deficit… ceased… Then the currency might collapse. Yields on gilts might also jump”

Calm! Take it easy Mr Wolf. The neo-independent BoE could then declare that the risk weight for the infallible sovereign of UK should also turn negative, and so be lowered from 0% to minus 20%. See… problem fixed!

To discuss economy, in a world in which bank credit is being so distorted, and so few care about it, makes me sometimes feel as I have fallen down Alice’s Rabbit-Hole. I hope, for my grandchildren’s sake, I wake up to find its all been a nightmare.

@PerKurowski ©