Today is Canada Day. Our best wishes go to all those Canadian citizens celebrating their national day. Garda were called to the quayside at Cobh in response to a report that a man was trying to row away from the quay while his boat was still tied up. When questioned, and although inebriated, he was able to reply that he was off to drink Canada Dry. It is not known whether he was a local from Cork or a Canadian. Two years ago on Canada Day the new Governor of the Bank of England took up office. It is reported that he travelled to work via the London Underground. Mark Carney is a Canadian citizen and was previously the Governor of the Bank of Canada. Although born in the Northwest Territories, he is also an Irish Citizen due to his Irish ancestry. He has brothers and a sister named Sean, Brian and Brenda. He was born on 16th March 1965. One day later and he might have been baptised Patrick. In that case we would have been discussing Patrick-ism.
Quoting from Wikipedia: “Carney’s actions as the Bank of Canada’s governor are said to have played a major role in helping Canada avoid the worst impacts of the financial crisis that began in 2007. The epoch-making feature of his tenure as governor remains the decision to cut the overnight rate by 50 base points in March 2008, only one month after his appointment. While the European Central Bank delivered a rate increase in July 2008, Carney anticipated the leveraged-loan crisis would trigger global contagion. When policy rates in Canada hit the effective lower-bound, the central bank combatted the crisis with the nonstandard monetary tool ‘conditional commitment’ in April 2009 to hold the policy rate for at least one year, in a boost to domestic credit conditions and market confidence. Output and employment began to recover from mid-2009, in part thanks to monetary stimulus. The Canadian economy outperformed those of its G7 peers during the crisis, and Canada was the first G7 nation to have both its GDP and employment recover to pre-crisis levels. The Bank’s decision to provide substantial additional liquidity to the Canadian financial system, and its unusual step of announcing a commitment to keep interest at their lowest possible level for one year, appear to have been significant contributors to Canada’s weathering of the crisis. Canada’s risk-averse fiscal and regulatory environment is also cited as a factor. In 2009 a Newsweek columnist wrote, ‘Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize.’
Carney earned various accolades for his leadership during the financial crisis. He was named one of the Financial Times‘s ‘Fifty who will frame the way forward’, and Time Magazine‘s ‘2010 Time 100’. In May 2011 Reader’s Digest named him ‘Editor’s Choice for Most Trusted Canadian’. In October 2012 Carney was named ‘Central Bank Governor of the Year 2012’ by the editors of Euromoney magazine.“
So far, so good. Mark Joseph Carney assumed the office of Governor of the Bank of England on 1st July 2013. The term is for eight years, but it has been agreed that he will quit after five years  due to the educational plans for his eldest daughter. He married Diana Fox in 1995, who he met while at the University of Oxford. They have four daughters. He played ice-hockey when he was at Harvard University and the University of Oxford, and ran the 2011 Ottawa and 2015 London Marathons. Oh, and he is a Catholic. He is/was Chairman of the Financial Stability Board based in Basel from 2012. The Board had identified 29 banks that were considered sufficiently large as to pose a risk to the global economy should they fail. Prior to that, from 2010, he was Chairman of the Bank for International Settlements’ Committee on the Global Financial System. He is also a member of the Group of Thirty [an international body of leading financiers and academics] and of the Foundation Board of the World Economic Forum. It is also reported that he attended the Bilderberg Group annual meetings in 2011 and 2012.
Even before taking over as Governor at BoE he was reportedly at odds with Andy Haldane its Chief Economist about leverage ratios and bank break-ups, saying that Haldane does not have a “proper understanding of the facts” on bank regulation. He has since been critical of Sir Mervyn King and the Bank’s handling of the financial crisis, together with the Bank’s archaic structure.
In this year’s Mansion House speech he lambasted the banks and markets for their unethical behaviour, misconduct and failures of fixed income, currency and commodity markets that threatened real markets, leading to mistrust. Appearing before the House of Commons Treasury Select Committee in March 2014 he was asked about QE and the asset purchase programme – among other things. His response was that it may never be wound down. The sale of £375bn gilts would have a big impact on debt markets. “It was an hypothetical question, pure hypothetical”. Unwinding would not take place before several adjustments to interest rates. Even then, he said, the Treasury would not have a say in the decision. “With respect to the Treasury, it’s a monetary policy decision”.
The BoE is the most powerful central bank in the world, having been given responsibility for monetary policy, financial stability and regulation of individual banks; but to believe that the Chancellor of the Exchequer cannot influence or tell the Bank what to do is far from the mark. There is a Catch 22 situation developing. By keeping base interest rates low it is delaying action on QE and the sale of the gilts purchased by the BoE. The threat or fear of deflation is heightened because the sale of gilts and burning the proceeds will lower the rate of inflation. This could be overcome by using RPI as the measure instead of CPI, or by redefining the rules as to what constitutes deflation [such as, it is not deflation until both CPI and RPI are negative] except the EU will not let it happen.
If the BoE floods the bond market with a resale programme it will lower bond prices. If the central banks of Europe, Sweden, Japan and United States did the same and all at the same time it would be catastrophic. As ever, everyone is waiting for a lead from the US, and Obama is clueless. If the UK does not achieve a surplus budget by 2017, and we are already two years behind schedule, as promised and start to reduce borrowing then we are even less likely to avoid the Great Crash. Our national debt is now £1.5trn and the US national debt has reached $19trn.
Only God knows what the US Federal Reserve is going to do. Of course ‘In God we trust’ is printed on every US banknote, but relying on Divine intervention in this respect is stretching their inaction to the point of foolhardiness. The G7 is going to have to get its act together.
Mark Carney (good Catholic that he is) was truthful and stated that the BoE might not sell all the gilts that they purchased, but that raises even more questions. My view is; base interest rate needs to be increased gradually and if we are going to resell the gilts we need to do it now before the other central banks flood the market. The Bank needs to confirm that the proceeds will be burnt and so far it has not done that. The Chancellor has to confirm that he will live with a strong £ and zero inflation. The alternative is; if we do not resell and are beaten to it by the US, we should burn the gilts and reduce our interest payment, thereby living with an increased money supply and weaker £, together with higher inflation but less risk of deflation.
On balance the latter might be the better alternative, even though I believe in a strong £, and the national debt would be reduced by £373bn. It is a major concern that this decision be a matter of public policy and should be taken by elected politicians after obtaining a mandate in the general election. It should not be left to the unelected BoE.
So it is time for George to man-up. He cannot be like Pontius Pilate and wash his hands of the decision. Otherwise, “In Mark we trust”. However, he must hurry as he only has another three years to act.