Friday, 4 May 2012

Mervyn plays the blame game

Mr. King, Governor of the Bank of England, produced a rather self serving speech on the Today programme. Like a true politician, Mr King used the opportunity to evade responsibility for the crisis, largely by pointing the finger of blame at others.

He should have spared himself the bother. The facts speak clearly and unambiguously about his role in the recent economy history of this country. During the early years of his tenure as governor, the Bank of England kept interest rates dangerously low. This lax policy stance fuelled a credit boom that financed the housing bubble. The Bank of England had an opportunity to kill the bubble in 2005. Instead of holding fast to a high interest rate policy, the Bank of England cut rates and reinvigorated house price inflation. The rest of the story you know.....

The Bank of England lost responsibility for bank supervision in 1997 when new Labour came to office. Therefore, Mr King can rightly argue that he was not responsible for the lax oversight of the financial sector. Perhaps, he could have done more to articulate his concerns about the unsustainable growth of credit. Nevertheless, he is not top of the list of guilty men who facilitated the catastrophic failure of banks like RBS, Northern Rock, and Lloyds.

On inflation, he carries a heavy responsibility. Since 2006, the Bank of England has missed its inflation target more or less consistently. Since the crisis began, the UK suffered from the highest inflation rate of any advanced economy. This is a direct result of policy mistakes such as reducing interest rates to absurdly low levels, as well as the disastrous decision to introduce quantitative easing.

His responsibility for the appalling fiscal policies of the last five years is more indirect. Without quantitative easing the government could not have run up such large deficits. Mr King was an enabler.

Economic historians will judge Mr King very harshly. Under his watch, the country ran up the largest asset bubble in its history. This inevitably led to the worst financial crisis in 100 years. The policy response was ill judged, often exacerbating rather than mitigating the effects of the crisis. GDP fell sharply and the recovery never materialised. It is a grim record, highlighting consistently poor judgement and bad decision-making.

His retirement cannot come a moment too soon.


livescore said...
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Jim said...

I think you have matter one jot if he had shouted it from the rooftops. He would have been cut down by the vested interests in keeping the party going with a full swing. Can you imagine the media campaign (orchestrated by inhabitants of No 10 and 11 Downing Street) against an unelected official who was trying to slow the economy down? We had eliminated boom and bust remember? Anyone who stuck their head above the parapet would have had it shot off in rapid time.

When crowds go mad there is nothing one man or even a few men can do to sway them. The entire country had decided that houses only went up in value, forever, and were borrowing and spending on that assumption. No-one wanted to hear that it was nonsense, and anyone saying so would lose their public prestige, and maybe their job - remember Tony Dye:

Unfortunately the history of economic policy is littered with hindsight. Its obvious what should have been done, when looking from here. When you were there the whole public attitude was different. By the time someone like the head of the BoE could have convinced the politicians that things needed to be reigned in, it would have been too late. The 'hard decisions' that politicians always talk about, but never make, needed to be taken in 2002-5, when it would have been politically impossible to make them.

markymark said...

One of the things that gets up my goat is the normalisation of lying.

Perhaps it ius naive to believe that it has always been so but there are two really big lies that really rankle with me.

Firstly there is the lie of the inflation rate. The reported rates don't reflect people's actual experience. Transportation costs, fuel, heating, food, education, healthcare - all people's actual expenses are rising in excess of the reported rates.

Secondly the reported numbers themselves are continually in excess of the BOE's estimates. It seems to be an open secret that the plan is to inflate away the debts but that this is a plan that can't be publically acknowledged.

In the grand scheme of things lying is a crime pretty low down the list and i'm sure those involved would argue that they had no alternative but it irks no end.

RenterGirl said...

All parties cosied up to the banks: nobody wanted regulation. Mervyn could have stepped in, but chose not to.

Kitz said...

He wants inflation .He has inflation.
Seems successful to me .

Electro-Kevin said...

"The entire country had decided that houses only went up in value"


Not me. I was right. What I didn't bank on was that people who'd bet the farm were going to be rescued by the Govt with taxpayers' money, savers' money, pensioners' money and record low interest rates.

Taxpayer's money ?

Welfare assisted buy-to-let, first time buyer assistance, forbearance from state subsidised banks, mass immigration, inflation ...

With hindsight it would have been better to max out the mortgage on a big house and then keep maxing it out to buy stuff.

I had hoped the flash people who flaunted their debt-funded stuff at me would be feeling sorry by now but they're not.

Those of you who are too young to have enjoyed decade after 1997 should be very angry.

Ed R said...

So we have someone to blame for the mess the UK is in - - -

So how do we get out of it??

Electro-Kevin said...

Ed R - Spank those who did it.

- Provides a good deterent for next time

- Good for the morale of those who tried to do the right things

I don't suppose they're solutions but it would be a start.

America has had its housing bust and is recovering. Ours hasn't been allowed to happen fully.

Jim said...

@Ed R; we don't, not without blood, sweat and tears, whatever happens.

Best case scenario? Our idiots in charge realise that we have been given a lifeline similar to North Sea oil in shale gas and go hell for leather to exploit it. Cheap energy could be the boost to reinvigorate the UK economy, that doesn't involve more debt for someone.

But don't hold your breath, the watermelons won't allow it.