The Great Debate UK
In the aftermath of Liverpool and Uruguay footballer Luis Suarez biting an opponent yet again, and with such aggression that he scarred the player’s arm and hurt his own teeth, FIFA has banned him for nine games, and psychologists are trying to justify his behaviour by saying that Suarez must have been humiliated and frustrated in his youth. I, in contrast, am asking whether Mark Carney and co. should learn to be a little more like Suarez?
Let me make this clear, I am not advocating that members of the Bank of England’s Monetary Policy Committee give each other a good bite if they disagree on policy (imagine the bite marks at the ECB if that was socially acceptable), but they should metaphorically pull a few Suarez’s from time to time.
Earlier this week was a classic example. Mark Carney was testifying to parliament on the May Inflation Report. A mere two weeks before, Carney had been rather candid at the annual Mansion House dinner, and stated that the markets were mis-pricing the potential for a rate hike. This triggered a huge market reaction, pushing GBP-USD to its highest level for 5 years. Interest rate traders wasted no time shifting their expectations for a rate rise from Q2 2015 to January 2015.
Carney would have known that his Mansion House comments would be widely reported in the press, yet, he changed his tune when he was speaking to the politicians. Rather than play up the prospect of a rate hike, as he had done a couple of weeks’ before, he talked down the chance of one, saying that his comments at Mansion House were his own personal views, and that wages were too low to hike rates.
from Anatole Kaletsky:
Can economists contribute anything useful to our understanding of politics, business and finance in the real world?
I raise this question having spent last weekend in Toronto at the annual conference of the Institute for New Economic Thinking, a foundation created in 2009 in response to the failure of modern economics in the global financial crisis (whose board I currently chair). Unfortunately, the question raised above is as troubling today as it was in November 2008, when Britain’s Queen Elizabeth famously stunned the head of the London School of Economics by asking faux naively, “But why did nobody foresee this [economic collapse]?”
If you asked someone to list the chief qualities needed to be a good central banker I assume that the list may include: good communicator, wise, attention to detail, clear thinking, credibility, and good with numbers. However, in recent months these qualities have been sadly lacking, most notably last week when the Federal Reserve wrong-footed the markets and failed to start tapering its enormous QE programme.
The market had expected asset purchases to be tapered because: 1, Ben Bernanke had dropped fairly big hints at his June press conference that tapering was likely to take place sooner rather than later and 2, because the unemployment rate has consistently declined all year and if it continues moving in this direction then it could hit the Fed’s 6.5% target rate in the coming months.
We are at the stage of the financial cycle where central banks turn into circuses and central bankers become the circus performers. The market is transfixed by the show, watching every move and trying to anticipate what trick or shock will come next.
What is interesting about this particular circus is that the Ringmaster is about to leave, their replacement is turning into a whole new show of its own.
The new governor of the Bank of England has shaken things up at the Old Lady. Not only has he brought a touch of glamour to the Bank, he is considered a George Clooney look-alike by some, but he has dramatically altered the way that the Bank does things. Since he arrived a little over a month ago we’ve had statements released after meetings and now the Bank has adopted forward guidance.
But has this central banker with a twinkle in his eye run into a brick wall at the BOE? The forward guidance that he announced during the August Inflation Report went down like a lead balloon. The markets immediately challenged the Bank’s pledge to keep interest rates low until 2016, UK Gilt yields at one point rose to their highest level since before he joined as Governor, and the pound also jumped sharply.
from Anatole Kaletsky:
It’s cynical, manipulative and hypocritical – and it looks like it is going to work. How often do you hear a sentence like this, to describe a government initiative or economic policy? Not often enough.
The media and a surprisingly high proportion of business leaders, financiers and economic analysts seem to believe that policies which are dishonest, intellectually inconsistent or obviously self-interested in their motivation are ipso facto doomed to fail or to damage the public interest. But this is manifestly untrue. The effectiveness of public policies and their ultimate desirability is in practice judged not by their motivations, but by their results.
–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.
–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:
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.