Rana Foroohar. Please ask yourself a question and, if you cannot answer it, do ponder why.

Sir, I refer to Rana Foroohar’s “Three questions for the Fed’s Powell” February 26.

Ms. Foroohar (and you too Sir) should ask herself: why do regulators want banks to hold more capital against what, by being perceived as risky, has been made quite innocous, than against what, because it is perceived as safe, is so much more dangerous?

And if could not come up with a truly convincing answer, then that should give her a clue on that something very strange is going on in the field of bank regulations.

And if she had gotten to that point, then it should not be too hard for her to begin to understand how those different capital requirements, which allows for some assets to be leveraged much more than others, might distort the allocation of credit to the real economy… and thereby affect its “real non-financialised growth”

And at that point she would surely add, that same question she could not answer, to those three she proposes to ask Powell.

Foroohar also references companies “buying up the higher-yielding bonds of riskier companies at a favourable spread and holding those assets offshore [and that now after] President Donald Trump’s new tax rules… They will simply be able to move their money wherever they want, whenever they want, in cash.”

“Cash”? In order to become cash, all those assets the companies have bought and held offshore must be sold. Would that not have any consequences?

@PerKurowski

When frozen in other types of “cash”, it is hard to free up cash to spend on good causes without losing much value

Sir, I refer to “Debt Collectors” September 16, in which Eric Platt, Alexandra Scaggs and Nicole Bullock search to explain what could happen to the “portfolio of cash, securities and investments worth roughly $840bn, held outside the US by just 30 US companies, because of tax reform designed to … encourage American companies to bring back jobs and profits trapped overseas”.

The article, though it refers to difficulties such as the “repatriation process itself could involve selling bonds” and the impact of that on interest rates, fails to illustrate the whole truth.

The reality is that all that “cash”, as well as all that “cash” held by other wealthy (for instance in Panama) except for the less than 1% that could be in real cash, is in other assets like securities investments, perhaps even in art collections.

So, in order to convert all that “cash” into real cash, those other assets have to be sold to others who are then required to give up their real cash for these. And, in that process, clearly a lot of the value of the “cash” would just change hands or disappear.

Why are these difficulties of converting “cash” into cash not more discussed? Because doing so would be sort of inconvenient for those redistribution profiteers who try to sell their politically beneficial envy, for instance that present in the “one percenters being against all us 99 percenters” theme.

What is a £20 million flat in London or a US$200 million Picasso hanging on a wall but the voluntary freezing of millions in alternative purchase power that could be out there in the economy competing for consumer goods… and generating inflation? Is a lowering of the value of hard-assets the inflation driver central banks want?

PS. Of course the above does not take away one iota of the need to relentlessly pursue those who have accumulated “cash” assets illegally, and might hold these in places like in Panama.

https://teawithft.blogspot.com/2016/04/tett-get-it-whats-stashed-away-in.html

https://perkurowski.blogspot.com/2016/10/i-tweeted-how-do-you-morph-200-million.html

http://perkurowski.blogspot.com/2016/01/the-wealth-of-62-richest-equals-that-of.html

Dominic Rossi: Populist bank regulation “strongmen” have promoted the state apparatus ever since 1988’s Basel Accord

Dominic Rossi writes: “The twin freedoms of capital and labour movement are fading, secular relics from a passing liberal age… The tendency of “strongmen” to use the state apparatus to conjure up growth will set our new course. The tedium of recent years, slow but steady growth, looks set to be dislodged by the seductive alchemy of a fiscally induced boom-bust cycle beloved by populists” “Dr Doom awaits seat at table as president-elect enjoys a free lunch” November 24.

Sir, I am sorry, we are already there. The Basel Committee for Banking Supervision’s technocrat strongmen, in 1988 decided that for the purpose of capital requirements for banks, the risk weight of the sovereign was 0% and that of We the People 100%. Could there be a more devious way of favoring the growth of a “state apparatus”?

Where would the rates on US Treasuries, those that usually serves as a proxy of the risk free interest rate be without this enormous regulatory subsidy? 

And that subsidy does not come free. Since decreed, it has been paid by millions of SMEs and entrepreneurs not getting access to bank credit on real undistorted market terms.

Rossi writes: “The repatriation of offshore US corporate balance sheets will help finance the good times” Yes and no! It might help finance good times for government if it causes more fiscal income, but let us not forget that those balance sheets might already be fully invested in US assets.

Rossi ends in: “Populism and strong currencies are rarely seen together for long.” Indeed it will, sooner or later, guarantee the dangerously overpopulation of what is decreed, perceived or concocted as safe havens… and when that happens everything will come tumbling down 

@PerKurowski