"Risk-free rate" and "government rate" are synonymous - so long as the government involved consults a large enough group of people in setting its policies.
But the author's conclusions are wrong - that the world will get along with a smaller global financial system. Empirically, there is a need for a GREATER - not smaller - global credit and payment-intermediation system. The world's problem is simple: the potential of human labor is not adequately valorized by the present capitalist price system - because that system is too small and not leveraged enough.
If you look at the capital efficiency of the GSEs, it is unapproachable by the private system. It's clear to me that this kind of capital efficiency has to be applied even more broadly. The financial system is not false or illusory or oppressive in and of itself. The Ron Pauls and the goldbugs and the old-fashioned centralists are obviously wrong when they contend that the entire fiat money system can and should be scrapped. That's insane.
And I fear we're going to get a pretty decent feeling for just how insane it is because the reckless, radical laissez-faire crowd in the Administration fundamentally believe that the right thing to do is let the world economy liquidate. And so they are serially failing to act in time to maintain liquidity, thus steering the world economy into the guard rails. Fortunately, rational people are wrestling the steering wheel away from the Toonces crowd.
Unfortunately, they've got a pretty good grip.
-- peace,
boddi
http://financialroadtosocialism.blogspot.com/