Financial communism

And when reading this, don't just take my word on it:

Paul Volcker’s statist confession… that shall not be heard.

“Assets for which capital requirements were nonexistent, were what had most political support: sovereign credits A simple ‘leverage ratio’ discouraged holdings of low-return government securities"

Is the current ultra low or even negative interest rates on sovereign debt something weird? 

Of course not: a) take away all central banks purchases of public debt with QEs, which helped to keep the saving glut intact or even increase it; b) get rid of regulations that assign the lowest risk weights and thereby the lowest capital requirements for banks to the borrowings of the sovereign monarch; c) take away liquidity requirements that have banks buying sovereign debt; d) stop making pension funds and insurers having to buy “safe” government debt irrespective of the price; and e) stop central banks from paying negative returns… and you would not see public debt bought and sold at ultra-low, much less negative rates.

What we are really suffering from is a well-disguised and utterly creative and non-transparent financial statism of monstrous proportions, which impedes the markets to signal what the undistorted interest rate on sovereign debts should be. 

The difference between the interest rates sovereigns would have to pay on their debts in absence of all above mentioned favors, and the current ultra-low or even negative interests they pay is, de facto, a well camouflaged tax, retained before the holders of those debts could earn it.

And, if ignoring the risk of inflation, one could argue sovereign debts issued in their own domestic/printable fiat currency is safer, and should therefore have lower capital requirements, but, the other side of that coin, is that it really implies that government bureaucrats would know better what to do with bank credit they're not personally responsible for, than for instance private entrepreneurs who sign their own name on bank loans to them.

So if we consider the non-transparent regulatory subsidies for sovereign debt, and the effects of central banks purchasing so much of it, as we should, the already so scary fiscal deficits are even larger than reported

I have the nagging feeling that the market value of sovereign debt much more accurately represents the real debt burden faced by those sovereigns than the par value of it. And that that market value  could currently be a scary number in relation to GDP.

And after having thereby empowered the Bureaucracy Autocracies, many of those statism profiteers shamelessly blame our difficulties on the usual scapegoat… neoliberalism

And this communist virus, Basel I, fabricated in the laboratories of the Basel Committee, was let loose in the free world 1988, one year before the Berlin Wall fell.

PS. The fact is that I could just as well titled this as "Financial fascism"

PS. 2004, in a letter published in the Financial Times I wrote: “Our bank supervisors in Basel are unwittingly controlling the capital flows in the world. How many Basel propositions will it take before they start realizing the damage, they are doing by favoring so much bank lending to the public sector.”

PS. The subsidized risk-free rate

PS. In the case of the Eurozone sovereigns it’s even worse as all these have been by EU/EC assigned a 0% risk weight even though they take on debt that is not denominated in their own domestic printable currency

PS. The capacity to borrow at reasonable rates is a strategic sovereign asset.

PS. Before the debt ceiling is lifted, which it must be, Congress must dare to at least pose a question.

PS. Was that’s not a valiant, courageous and honorable confession by Paul Volcker? Thanks @PostOpinions for not ignoring it.