A few questions for my old University Professors

Location Date: 
January 17, 2012

1. How can you have “zero-bound” rates across most of the developed world economies for long periods of time? I understand from my ECO 101 that lower rates should lead to greater demand, but don’t zero rates pretty much imply that there is no demand? 

2. Why does anyone own/trade government CDS? A fifty-percent haircut on Greek debt is not a default? WTF? It could only take a European bureaucrat schooled in existentialism to come up with this conclusion! 

3. How can U.S. money centre banks actually show improving accounting earnings based on the falling market value of their debt? This is accounting gone mad! 

4. Is any government debt truly triple A? Given our unbalanced global economy that is becoming more centrally planned by the day, should we not just get rid of the moniker? My suggestion – all government debt is rated “CE” (i.e. caveat emptor). 

5. Does the “risk-free rate” exist anymore? If not, then the economic models created by some Nobel laureates in economics are even more dangerous than anyone could believe. 

6. Speaking of Nobel Prizes, how come Hyman Minsky did not receive one? As a corollary, can the Nobel Committee take back a prize? There is a long list of prior “voodoo” economic winners. 

7. Does Quantitative Easing solve a banking crisis? This question is somewhat unfair given QE is an invention of today’s central bankers. Try it once, twice and according to the pundits 3 times will be a charm? It seems to me that solving our problems with more leverage is a very 
dangerous form of procrastination.

My guess is that once we are done with 2012, we will need some new textbooks for economics.

Jim McGovern