Now that Mervyn King has given his last press conference and spotted some green shoots of his own, attention is turning to his successor, Mark Carney. He is being portrayed as the man on the white horse riding to our rescue. He has been very successful in Canada and I wish him well. But I do hope he is well prepared for the English press.
Reports suggest that the Chancellor will urge the new governor to increase ‘quantitative easing’ (QE), the printing of money or the buying up of the government’s own debt in order to speed up the recovery. I hope the new governor will exert his independence and be cautious about that. At the beginning of the financial crisis, QE in the US, Japan and here was necessary as money supply plunged to levels not seen since the 1930s. But each successive round of QE seems less effective and the main effects are on stock markets, bond prices and house prices. It has also produced a race to the bottom by devaluing countries.
QE forces investors, including banks, away from safe assets and into riskier ones. Real improvements in the economy should come from productivity increases and not ever-increasing asset prices. Some day this bubble will meet a pin. I just hope that in clearing up the mess of the last disaster, the central banks of the world are not sowing the seeds of the next.
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