Note 1988: "Assets for which bank capital requirements were nonexistent, were what had the most political support; sovereign credits. A ‘leverage ratio’ discouraged holdings of low-return government securities” Paul Volcker
A letter in the Washington Post
Before the debt ceiling is lifted, which it must be, Congress must dare to at least pose a question.
In much of Peter Orszag’s Nov. 22 op-ed, “GOP threats to weaponize the debt limit are dangerous,” one can agree with his conclusion, but when he mentioned, “The evolution of debt is also influenced by the economy, market interest rates and other factors, but those are mostly outside the control of policymakers,” he omitted vital aspects. Let me explain it with a question:
What would the United States’ public debt be in the absence of regulatory subsidies, such as bank capital requirements with decreed risk weights of zero percent against federal government debts and 100 percent against citizens’ debts; copious amounts of Treasury purchases by the Fed with quantitative easing programs; and the preaching by modern monetary theory fans that has definitely promoted a dangerous lackadaisical attitude when discussing the limits of public debt?
Yes, Congress must approve increasing the debt level. It’s too late to do otherwise, but to do so without even trying to answer that question would be to irresponsibly kick the debt can forward and upward with disastrous consequences.
And, by the way, the Supreme Court should look at what the Founding Fathers might have thought about the aforementioned risk weights.
PS. The links displayed above are the ones placed on the web by the Washington Post
PS. Another letter in the Washington Post: The capacity to borrow at reasonable rates is a strategic sovereign asset that should not be irresponsibly squandered away.
Déjà vu! Not the first time I warn about a crisis can being kicked forward. The 2007-2008 was.
The Easy Debt governments have counted with the last decades have kept bureaucrats, politicians and their dependent on Easy Street
February 2023 Tweet
Regulators allow banks to hold much less capital/equity against government debt, bureaucrats/politicians spending now future tax revenues, than against loans to small businesses & entrepreneurs, those who could generate future tax revenues
Smart? Hell no!
“Moral Hazard: If governments believe that banks and financial institutions will always be willing to invest in their debt due to regulatory advantages, they may have less incentive to pursue responsible fiscal policies.” ChatGPT OpenAI #AI
