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from Anatole Kaletsky:

Who will get credit for Britain’s economic turnaround?

Mark Carney, the former head of the Bank of Canada who has just taken over as governor of the Bank of England, presided Thursday over his first monthly meeting of Britain’s Monetary Policy Committee (MPC). The meeting produced no change in monetary policy, yet Carney is already being hailed as Britain’s economic savior. The BBC even paid him the greatest compliment that any middle-aged white male could wish for, when it compared his appearance and hairstyle to George Clooney’s. Carney may continue basking in this adulation because he is lucky enough to be in the right place at the right time.

He has arrived at the BoE at the precise moment when the economic figures have started to suggest that the British economy is pulling out of its longest and deepest recession on record. One of the main reasons for this turnaround has been a sudden pickup in housing prices and mortgage lending, the traditional driving forces of the British economy. This improvement, in turn, has reflected a bold new government-backed borrowing program, whereby the British Treasury is guaranteeing up to £600,000 of new mortgage debt for anyone who can put up 5 percent of equity into buying a home. While this audacious policy attracted surprisingly little attention in the media when George Osborne announced it in his March budget, British homeowners and bankers were quick to catch on. As a result, house prices are rising rapidly across Britain, mortgage lending has rebounded to its highest level since the Lehman crisis and homebuilders’ shares have almost doubled. And all this is before the government incentives are expanded from newly-built houses to secondhand properties and remortgages in January 2014. For the moment, house prices are being bid up by cash-rich buyers who are front-running the government subsidies, in the confident expectation that a full-scale property boom will begin in 2014.

Given the powerful response to the government’s mortgage subsidies, the additional quantitative easing that was widely expected from Mark Carney’s “monetary activism” may no longer be required. It may be enough for the BoE to provide commercial banks with liquidity to finance the government’s planned credit expansion and to keep short-term rates near zero. Instead of trying to persuade the hawks on the MPC who repeatedly thwarted his predecessor Mervyn King’s requests for more QE, Carney may succeed in reviving the British economy simply by making a few speeches -- the “forward guidance” he used in Canada to convince investors that interest rates would stay near zero for several years ahead.

But what will the impact be on the British economy if Carney and Osborne manage to generate a property and mortgage boom? Refloating the economy on a wave of property appreciation and mortgage borrowing would return Britain to the debt-driven, consumer-led growth of the pre-Lehman period. It would mean abandoning the “structural rebalancing” from consumption and services to exports and manufacturing that Mervyn King believed was essential to Britain’s economic rehabilitation. But King’s views are no longer relevant -- and his record of economic management suggests that a degree of skepticism about his analysis may be in order.

from The Great Debate UK:

Expect no immediate fireworks from Mark Carney

--Darren Williams is European Economist at AllianceBernstein. The opinions expressed are his own.--

On July 1, former Bank of Canada Governor Mark Carney will replace Sir Mervyn King as Governor of the Bank of England. For many observers, this will herald a new dawn in the conduct of British monetary policy. The process, however, will be more evolutionary than revolutionary.

from MacroScope:

Back to banking union

The G8 produced little heat or light on the state of the world economy but if there was one clarion call it was for the euro zone to get on with forming a banking union – the last major initiative needed to draw a line under the euro zone debt crisis.

With the European Central Bank effectively underwriting the bloc’s governments with its bond-buying pledge, a cross-border mechanism to recapitalise or wind up failing banks would do the same for the financial sector.

from MacroScope:

A week to reckon with

The week kicks off with a G8 leaders’ summit in Northern Ireland. Syria will dominate the gathering and the British agenda on tax avoidance is likely to be long on rhetoric, short on specifics. But for the markets, this meeting could still yield some big news. For a start, Japanese prime minister Abe is there – the man who has launched one of the most aggressive stimulus drives in history yet has already seen the yen climb back to the level it held before he started. Abe will also speak in London and Warsaw during the week.

The financial backdrop could hardly be more volatile with emerging markets selling off dramatically since the Federal Reserve warned the pace of its dollar creation could be slowed. Berlin has said the G8 leaders are likely to discuss the role of central banks and monetary policy, and Angela Merkel will hold bilateral talks with Abe during the summit. President Barack Obama travels to Berlin after the summit for talks with Merkel.

from MacroScope:

Mervyn King gets a “B” grade from economists… for the time being

As is now customary for retiring central bank chiefs, Bank of England Governor Mervyn King has received a warm - but not a standing - ovation from economists for his time in charge.

But if there’s one thing the last few years have shown, it’s that the legacy of prominent central bankers can sour quickly after retirement.

from MacroScope:

Mervyn King’s economic ray of light may be too bright

In his valedictory Quarterly Inflation Report, Bank of England Governor Mervyn King shone a ray of light on the British economy, saying it should grow 0.5 percent in the current quarter.

But according to the latest Reuters poll of more than 30 economists, published on Tuesday, that might be too optimistic.

from Breakingviews:

BoE’s King is caught in the trilemma trap

By Edward Hadas

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Monetary policy would be so much easier if people, banks and markets obeyed the monetary authorities’ orders. In such a world, Thursday’s dictum from Mervyn King would be enough to put a stop to the pound’s recent decline. The UK’s central bank governor said that the pound was “probably” properly valued, after respective 6 and 7 percent falls against the euro and dollar so far in 2013.

from Anatole Kaletsky:

Is a revolution in economic thinking under way?

Four years after the start of the Great Recession, the global economy has not recovered, voters are losing patience and governments around the world are falling like ninepins. This is a situation conducive to revolutionary thinking, if not yet in politics, then maybe in economics.

In the past few months the International Monetary Fund, previously a bastion of austerity, has swung in favor of expansionary fiscal policies. The U.S. Federal Reserve has committed itself to printing money without limit until it restores full employment. And the European Central Bank has announced unlimited bond purchases with printed money, a policy denounced, quite literally, as the work of the devil by the president of the German Bundesbank.

from Breakingviews:

Osborne should take King’s naughty fiscal gift

By Ian Campbell

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Mervyn King is at it again. The governor of the Bank of England backed the government’s austerity policies too explicitly and is now writing its excuses for missing its fiscal targets. That’s outside the scope of King’s monetary remit. But George Osborne, the Chancellor of the Exchequer, should make the most of the governor’s green light. The weakness of global growth ought to encourage the UK to move its targets, not tighten its fiscal policy further.

from MacroScope:

Battening down the hatches

There’s a high degree of battening down the hatches going on before the Greek election by policymakers and market in case a hurricane results.

G20 sources told us last night that the major central banks would be prepared to take coordinated action to stabilize markets if necessary –- which I guess is always the case --  the Bank of England said it would  flood Britain’s banks with more than 100 billion pounds to try and get them to lend into the real economy and we broke news that the euro zone finance ministers will hold a conference call on Sunday evening to discuss the election results – all this as the world’s leaders gather in Mexico for a G20 summit starting on Monday.
Bank of England Governor Mervyn King said the euro zone malaise was creating a broader crisis of confidence.

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