Robert Peston, the BBC’s business editor, thinks we face a problem. It’s the fact that if banks are forced to hold more capital, that increases their costs, which turn reduces the amounts they lend (and/or increases the rates they charge for loans).
As he puts it, “So we find ourselves - as Lord Turner more or less admitted last night - trapped in a nightmare where trying to do the right thing to strengthen banks has the paradoxical and wrong outcome of undermining economic recovery and further debilitating the banks.”
Well now, there’s a PHENOMONALLY SIMPLE solution to that problem: to the extent that tighter bank regulation is deflationary, that can be compensated for by stimulatory measures taken by government / central bank.
Problem solved.
Moreover, stimulatory measures are TOTALLY AND COMPLETELY costless. For example, taking the stimulatory measure advocated by Turner and referred to by Peston (i.e. just having government print money and spend it), printing money does not cost anything in real terms.
In contrast, the costs of inadequate bank regulation are HORRENDOUS!!!!
The moral is that there is much to be said for ignoring economics commentators who are under contract to churn out a specific number of articles or words per week: sometimes they spout waffle or nonsense simply to fulfil their contract.
In contrast, economics bloggers tend to keep quiet when they’ve nothing to say. Indeed, when Warren Mosler was asked a week or two ago why he hadn’t written anything for a few days, his response was blunt and simple: couldn’t think of anything to say. That’s why I always look at his blog.
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