Lucas, D. (2014) “Putting an accurate price tag on government credit support“, VoxEU Organisation, 05 Δεκεμβρίου.
Governments run the world’s largest financial institutions. The size of government activities has grown in recent decades but comprehensive estimates are unavailable. This column presents new evidence on the costs of government credit support. It argues that governments tend to understate credit costs and the consequences of that could be considerable. Cost underreporting may lead to overinvestment and capital misallocation, could encourage the over-reliance on credit, reduce transparency, and cause a build-up of financial risk.
The BRICS officially launched the $100 billion New Development Bank along with a new reserve currency pool worth over another $100 billion on 15 July. That institution joins the ranks of multilateral development banks, which in 2012 collectively had portfolio holdings of more than a trillion euros of loans for infrastructure and other assets.
Development banks are a part of a much larger phenomenon, which is that governments run the world’s largest financial institutions. Collectively, government investment and insurance operations dwarf those of the largest commercial banks. The size and scope of activities have grown over the last several decades to include the explicit and implicit guarantees of too-big-to-fail private and international financial institutions and non-financial firms, direct and guaranteed loans, and more traditional insurance and guarantee programmes such as for bank deposits.
Comprehensive estimates are unavailable, but the IMF (IMF 2012) provides some sense of the size of governments’ credit market activities. It reports that the debt of government-related enterprises and outstanding government-guaranteed bonds totalled about 20% of GDP for many OECD countries, and more than 50% for the US. Those figures exclude the contingent guarantees and national credit programmes that would significantly increase those percentages.
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- Alvarez, F., Le Bihan, H. & Lippi, F. (2014) “Modelling sticky prices and the effect of monetary shocks“, VoxEU Organisation, 30 Σεπτεμβρίου.
- Athanassios Petralias & Pródromos Prodromídis (2014) “Price discovery under crisis: Uncovering the determinant factors of prices using efficient Bayesian model selection methods“, Παρατηρητήριο για την Κρίση, Ερευνητικό Κείμενο Νο. 12, Ιούλιος.
- Kahn, R. (2014) “Lowflation: Should We Fear Stable Prices?“, Global Economics Monthly: June 2014, Council on Foreign Relations, 10 Ιουνίου.