… not even by those former central bankers who refuse to fade away
Sir, with respects to “the attack on the European Central Bank’s by six former central bankers” you write “Only one thing can match the stature of the complainants and that is the hollowness of their complaint.” “
The euro’s guardians face a roar of the dinosaurs” October 7.
In their memo we read: “The negative impact of the ultra-low interest environment extends from the banking system, through insurance companies and pension funds, to the entire financial sector. The re-distribution effects in favour of owners of real assets, create serious social tensions. The young generations consider themselves deprived of the opportunity to provide for their old age through safe interest-bearing investments… and also furthers a ‘zombification’ of the economy”
Of course in the short run low and even negative interest rates benefit those who borrow more than those who save but, hopefully, one always hopes that will be made up in the future, by means of increased productivity and economic growth.
Significantly though the “dinosaurs” left out mentioning the distortions in the allocation of credit produced by the risk weighted bank capital requirements, which benefits especially the borrowings of sovereigns, that which FT does not want to discuss either.
I ask. Where would the Europe/Eurozone’s interest rates on sovereign be if banks, as it was for around 600 years before 1988’s Basel Accord, needed to hold the same amount of capital against loans to the sovereigns, currently 0%, than against loans to unrated European entrepreneurs, currently 8%? Dare try thinking about that. Ask your own journalists to try to answer that question.
And neither do they discuss the special case of the 0% risk weight assigned to all Eurozone sovereigns’ debts, even though none of these can print euros. Could it be because of a bad conscience?
And with respect to the young generation what it really should be up in arms against, are the much lower capital requirements for banks when financing the safer present than when financing that riskier future on which its good outcome the young really depend on.
@PerKurowski
Source:
http://teawithft.blogspot.com/2019/10/the-dangerous-distortions-in-allocation.html
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