BIS International banking and financial market developments

The above quote is found on page 23, admission that the bailouts are compounding the problem.

Its similar to ‘crowding out’ or the ‘Ricardo-Barro’ effect.

A situation in which the government is borrowing heavily while businesses and individuals also want to borrow.
The former can always pay the market interest rate, but the latter cannot, and is crowded out.

Ireland in the 80s was a prime example.

… now wheres my (economics) anorak :angry:

I see this as two credit problems:

  • on the supply side, the bailouts are depressing credit prices by charging below market costs (not accounting for risk) and reducing demand
  • on the demand side, the crowding out effect of ultra-safe government debt on high-rated securities.

this doesnt refer to the ailouts but to the continual lending / offering of positive interest rates by CB’s to commercial banks. both do crowd the market out.

And you don’t see this as a bailout?

A second order propping up. I think we are all on the same page here : bailout=flingin in money to the capital base , propping=flinging in subsidise money via the markets…