Martin Wolf, instead of peddling inflation, should be more concerned with the dangers of regulatory distortions

Sir, in “Overstated inflation dangers”, June 12, Martin Wolf writes: “So what limits banks’ lending? The answer is: its own solvency and that of its customers.” And though Wolf has served on the Independent Commission on Banking, he ignores bank regulations, which cannot only allow banks to keep on lending, to what is perceived as “absolutely safe”, even while basically being insolvent, or stop them from lending, to what is officially perceived as “risky”, even though being solvent.

Mr. Wolf is slowly and dangerously turning from a balanced “we should not be overwhelmingly afraid of inflation” spokesman, into an outright and shameless inflation peddler. So much that when he refers to the possibility of “financial repression”, he presents inflation as only a comfortable fit with it. So much that he even presents inflation as an almost welcomed option, “the simplest way”, to resolve “distributional conflicts – between creditors and debtors or perhaps between young and old”

Wolf ends though with something we can all agree with, namely: “Strong and sustainable growth is the solution. That can turn the inflation threat into a paper tiger.” But, for that type of growth to happen, we need to get rid of the distortions produced by the capital requirements for banks based on perceived risks, which make it completely impossible for banks to allocate resources in the real economy in an efficient way. Mr. Wolf, there is where the real understated dangers are.

PS. Sir, just to let you know, I am not copying Martin Wolf with this, since he has asked me not to send him any more comments related to “capital requirements for banks based on perceived risk”… he already knows it all… he thinks.