QUANTATIVE PLEASING ... WHAT SCOTS WANT
“I think it’s fair to characterise Mark Carney as unconventional. That is exactly what the bank, and our economy, needs right now. The new governor now has an additional weapon in his arsenal in the shape of ‘forward guidance’, which will allow the bank to deliver medium-term certainty on interest rates and provide a clear signal that its number one priority is supporting the recovery. This will allow business and consumers to plan ahead with more certainty which hopefully will result in increased investment and growth.
“Mr Carney deployed this tactic successfully during his term as governor of the Bank of Canada. Let’s hope he can repeat his success here.” It’s encouraging that Mr Carney’s enthusiasm for unconventional measures seems to at least partially explain his appointment. Given the structure of UK banks, simply applying more QE will be of limited benefit. Following the lead of the US Federal Reserve far more powerful figure in Scottish life than any of his predecessors. That consideration, as much as normal courtesy, may l i e behind First Mini s t e r Alex Salmond writi ng to Carney to congratulate him on his appointment last November.
ALTHOUGH not normally shy of using criticism of anything e mana t i n g from HM Treasury in order to make the case for Scottish independence, or of stressing Scotland’s joint ownership of the UK’s central bank, Swinney has kept his own counsel on Carney’s best course of action, declining the Sunday Herald’s offer to comment on the appointment.
In turn, the new BoE governor is very unlikely to twitch in explicitly stating that the policy will remain expansionary until unemployment falls to a certain level will be more effective, if hardly risk-free. However, even unorthodox monetary policy is unlikely to be sufficient if it’s not supported by fiscal stimulus. Banks are unwilling or incapable of creating sufficient credit to return the economy to full employment. It may be that Carney’s most important contribution will lie in helping to reform banking.
“Finally, as Scotland debates its constitutional future, it’s worth noting that Mark Carney is not just the most powerful and extravagantly remunerated technocrat in the land, he’s also one of the least accountable. Strange, then, that some propose leaving his influence barely diluted under independence.” “We would like to see Carney acting as he has done in Canada, as a safe and sage director of financial activity first and foremost, as well as being an adviser to politicians – not just their employee.
“He has a good track record and he will need to call on all his experience to guide the UK financial system through some so much as an eyebrow in response to questions about the implications for the Bank of a possible break-up of the UK, though King is likely to have briefed his successor on the substance of “technical discussions” held l ast month between the outgoing governor and the First Minister.
Carney will be also be briefed by the Bank of England’s eyes and ears in Scotland, Glasgow-based BoE “agent” William Dowson. However, their discussions are likely to have been at least as much about Scottish business confidence than about planning for an imminent overhaul of the Bank’s entire constitutional basis.
Some of the economists with most influence on the Scottish debate, notably on the question of the currency and monetary supervision of a future independent Scotland, have dispensed free advice to the new governor.
Professor John Kay, a former Scottish Government adviser who has poured public scorn on the “sterling zone” envisaged by Salmond & Co, has been equally caustic about the “improbable premise that [Carney] brings some magic Canadian formula for growth”.
In Kay’s view, the easiest way for the Canadian to keep his invincible aura is to stick to King’s slow but steady progress in purging the poison from the UK bank- choppy waters still to come and help drive the current cautiously austere agenda, while looking for opportunities for growth.
“Perhaps he can work to get QE into the high street as well as the larger companies and look for ways to help support our construction industry back to health. He may even be in post long enough to have some real worries about inflation.” “Clearly [Carney’s] greatest problem, in the widest sense, is how to improve growth – but there may not be much more that he can do here than his predecessor. He may at least reposition the Bank of England to be more in line with the US central bank and have employment and inflation as dual targets, although unofficially this seems to have been the situation for some time.
“For Scotland, there may be an opportunity to push for less of a population-based (that is, less prosoutheast England) policy focus, given that he comes from a federal system where each Canadian province has more equal weighting and where the benefits of shared growth may be valued more.” ing system, regardless of disapproval.
Professor Joseph Stiglitz, the Scottish Government’s current favourite international guru (or he was until he questioned the wisdom of corporation tax cuts), shares Kay’s belief that Carney’s energy should be deployed not on “an excessive focus on inflation” but on bringing the banks to order and creating the kind of credit market that will enable growth.
“Making the financial system more accountable, more responsible and more likely to fulfil its societal role should be Carney’s central mission,” he wrote last month.
“Before the crisis there was excessive faith in the efficiency of markets, in the notion that keeping inflation low was necessary to attain sustained growth, that monetary policy should exercise its influence mainly through interest rates.
“We now know the deficiencies of these models. Carney’s challenge will be to respond to the exigencies of the moment while creating a new policy framework ensuring stability with full employment and high growth.”
At least some of the vacuum of specu-
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