27th June 2014

A Governor's Pronouncement

George Carney, the Governor of Bank of England was being interviewed on BBC's Today programme, Friday 27th June . On the face of it, it was simply to explain the Bank's latest controls for the mortgages market but on such occasions it became much more; an analysis of the Governor's performance so far. In this regard it did not tell us anything new but it did reveal his uncertainty for the economy and an admittance that he had got both inflation and growth wrong. Carney is clearly a clever man and sees the potential trouble from the runaway housing market but he is basing much of his thinking on classical economics and its relationship between growth and inflation. On this basis the recovery is well on track hence the rather mild measures of limiting 85% of mortgages to 4.5 times income. However this is the same mind-set that Taleb describes in 'The Black Swan', summed up that turkeys can't see Christmas coming which ended in the crash of 2008. There are many differences between the economy of now and ten years ago but the principal one is the consolidation of wealth to an ever smaller group of people who are attempting to maximise their returns. So rather than a slow burning economy in the 90s and Naughties drawing from a wide base it is a quick burning fuse. When this fuse fizzles growth will fall away. The ensuring recession will be unlike the dramatic slowdown 2008 but just more stagnation that has become the hallmark of this government. It is unlikely to see a serve drop in house prices for the same reasons that have driven it; with few alternatives property will remain the best way to hold monetary value. The Governor will have met half his remit of protecting the banks.

More blogs for June 2014

comments powered by Disqus