The Great Debate UK
–Kathleen Brooks is research director at forex.com. The opinions expressed are her own.–
Back in the last quarter of 2012 when Mark Carney was announced as the Governor-elect of the Bank of England, imaginations ran wild about the new arsenal he could bring to the BoE’s toolkit for getting the UK economy moving again. GDP targeting and unlimited QE were not beyond the realms of possibility. Carney in the past had dismissed suggestions that central bankers were out of options when it came to stimulating over-leveraged developed economies. However, as we get closer to his start date the debate has shifted regarding monetary policy.
The Bank of Japan is throwing the kitchen sink at their economy, at the same time as debate is raging at the Fed that QE3 should come to an end. Added to this, the BoE seems to be having its own internal debate about the effectiveness of the UK’s quantitative easing policy.
Where Carney stands regarding these debates is what we want to know as his start date at the Old Lady comes into view. All eyes and ears will be on his response to questions about the positive and negative effects of QE. He is likely to be asked about the Bank of Japan’s enormous monetary policy programme announced earlier this month. While he is likely to be diplomatic, it will be interesting to see if he believes the BoJ’s economic objective – to use monetary stimulus to reach a 2% inflation target in 2 years – is realistic, and if QE is the best way to do this.
–Laurence Copeland is a professor of finance at Cardiff University Business School. The opinions expressed are his own.–
Dear Mark Carney,
As you arrive in your new office, you will not be short of free advice, least of all from economists. Nonetheless, like a supporter of the away team valiantly trying to make himself heard above the roar of the home crowd, this is my feeble attempt to compete against the chorus of voices calling for ever more, ever larger doses of QE, ever lower interest rates and even more devaluation of the Pound.
–Darren Williams is Senior European Economist at AllianceBernstein. The opinions expressed are his own.–
Bank of England governor-elect, Mark Carney, has raised hopes that the central bank may soon switch to a nominal GDP target. Although the costs seem to outweigh the benefits, the attractions of a radical new approach will grow if the economy remains stuck in the doldrums.
from Anatole Kaletsky:
When Mark Carney, the respected head of Canada’s central bank, was appointed on Monday to the even more august position of governor of the Bank of England, Britain’s reaction was a characteristic blend of self-deprecation and smugness.
The self-deprecation was publicly expressed by an Opposition MP, Barry Sheerman: “Isn’t it a little surprising that the leading banking nation on earth could not find a British candidate for the job?” This feeling of mild embarrassment seemed to be quietly shared by many Britons in addition to the distinguished domestic candidates who were passed over.
from Anatole Kaletsky:
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.
The once-good relationship between Bank of England Governor Mervyn King and his most likely successor, Deputy Governor Paul Tucker, is coming under increasing strain, according to a new book by former Daily Telegraph journalist Dan Conaghan. It alleges King’s management style and and alleged disdain for the financial markets is to blame.
While the Bank of England’s Monetary Policy Committee remains reasonably collegiate, on other matters King more than lives up to the description from former chancellor Alistair Darling that he is ‘incredibly stubborn’, says Conaghan, who now worksas an asset manager.
from James Saft:
James Saft is a Reuters columnist. The opinions expressed are his own.
Four years, several failed banks and at least one global recession later, Britain has finally discovered what its young people need: 19-1 leverage.
Britain has announced a new housing initiative, the centerpiece of which is a plan to entice first-time buyers into buying newly-built properties with as little as 5 percent down.
Accusing policymakers of acting out of sheer desperation is a pretty standard jibe by critics trying to put them off their stride.
Unfortunately, the latest round of QE came wrapped in comments from the Governor of the Bank of England which amounted, more or less, to saying: “Look! I’m staying calm – but it’s taking a hell of an effort, believe me!”
It is past time for monetary policy to be doing more to support recovery. The Jackson Hole conference has come and gone, and no shortage of excuses was provided for central banks to hold their fire — even though most economists acknowledged the grim outlook for the advanced economies.
Too much attention has been paid, however, to the failings of fiscal policies and to the shortfall from effects of earlier quantitative easing. Further asset purchases by the G7 central banks are needed to check not just a downturn, but the lasting erosion of productive capacity and of debt sustainability — especially when even justified fiscal and financial consolidation is undercutting short-term recovery. Easier monetary policy will increase the odds of other policies improving, and those policies’ effectiveness when they do.
-Kathleen Brooks is research director at forex.com. The opinions expressed are her own.-
There was more evidence in February that the world economy is re-flating; both China and the UK released inflation data that showed prices running above 4 percent. Authorities in these economies have a difficult few months ahead, if prices continue to rise at this clip then they may have an economic crisis on their hands.