Sovereign Risk and the 'Macroprudential' Illusion

Abstract

Looking back at 2014, capital requirements for banks have increased, liquidity rules have been promulgated, but all without any real focus on the twin causes of the 2008 crisis – namely securities fraud and inadequate disclosure of off balance-sheet leverage. Regulators have even coined the term “macroprudential” to describe a method of managing both markets and whole economies, as though top down management of democratic, free-market societies were actually possible. Seen from another perspective, 2014 was also the year in which public sector debt continued to increase. Governments from Washington to London and Tokyo steadfastly pretend that the accumulation of public and private debt, and related monetary expansion, is not a problem. At the same time, global regulators and their political sponsors in the major industrial nations steadfastly refuse to tackle the difficult problem of eliminating debt that is demonstrably uncollectible.

Keywords: Macroprudential, sovereign debt, debt reduction, Bank of Japan, ECB, Fed

JEL Classification: E01, E04, E05, E06, B02