Bank of England governor live on Channel 4 News
On Thursday of this week (20 September), a remarkable moment on Channel 4 News. The Governor of the Bank of England Sir Mervyn King will give his first ever live extended television interview.
Traditionally, the governor gives few interviews and then more normally pegged to specific moments in the Bank’s calendar. His appearance on Channel 4 News comes within a few days of the Treasury publishing the advertisement for his replacement. Sir Mervyn has been governor for nearly a decade. He retires on 1 July 2013.
He has presided over an extraordinarily turbulent period in our global and domestic financial fortunes. Our session with him will be wide ranging – from dealing with the banking crisis, to inflation targets, and much more
We are anticipating devoting half of Thursday’s Channel 4 News to the interview and are anxious to attract as many thoughts from viewers as possible. To begin with from snowbloggers commenting below!
You can follow Jon on Twitter @jonsnowC4
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There are 56 comments on this post
Do you believe that the Bank of England encouraged the bubble in the UK housing market by having zero reserve requirements for the banks and by keeping interest rates so low that thousands and perhaps millions of people felt able to take on huge mortgage debts in the run up to the financial crisis of August/September 2007?
Do you think the Bank encourage the bursting of that bubble by gradually raising interest rates from August 2006 to July 2007? The B of E raised Base Rate from 4.75% in August 2006 to 5.75% in July 2007 and this was enough to tip Northern Rock over the edge, and they were swiftly followed by RBS, HBOS, Abbey National Alliance and Leicester Bradford and Bingley etc.
From 2001 to 2006, the high street banks, and ordinary people, had become overleveraged with debt and as the Bank gradually increased interest rates, they could not support that level of indebtedness.
When RBS got into trouble, its balance sheet was larger than the entire annual GDP of the UK !!
While the Bank no doubt believed that this was the responsibility of the FSA, someone at the B of E could have said something to warn us just how over stretched the commercial banlks had become.
Your so called gradual ” raising interest rates from August 2006 to July 2007″ is a misnomer. The bank was not “raising rates”, but merely allowing them to return to normal levels after having slashed them from 2000 to 2003 in an effort to reflate the bubble economy caused by the dotcom boom.
My question for Sir Mervyn:
The regime of inflation targeting, with an independent central bank, was intended to be the best way to stabilise aggregate demand, and produce the best possible outcomes for the real economy.
Under this regime, we have experienced the worst depression since the 1930s – a depression with no end in sight. In the 1930s, central bankers blamed “outside forces” for making their jobs difficult; Milton Friedman showed us that we should blame the central bankers.
Should we blame the regime of inflation targeting for the disastrous failure of UK demand stabilisation since 2008 – and should we look for alternative policy regimes, such as nominal GDP targeting – or should we blame the central bankers?
Inflation targeting never occurred. Instead we had an era of inflation target redefining. First RPI, then RPI-X. Then CPI. Then hedonic adjustments. And when even that load of goal post shifting couldn’t keep inflation “on target”, they just let it soar and wrote all those pointless letters. The central bank failed because it failed to target a consistent measure and got found out by a massive bubble pop. Those watching house prices knew this back in 2004. Just visit housepricecrash if you don’t believe me.
I’d like to get Mr. Kings view on the following:
We are experiencing a deleveraging and according to the extremely successful macro investor
Ray Dalio the solutions to this are known. A mix of money printing and austerity in a balance such that
a social upheaval is not triggered. The last part is key and this is where fiscal policy supposedly
comes in. What I would like to know is if Merv believes the coventional approach of lower tax on
business, manufacturing incentives, and infra structure projects are the best way to do this.
In today’s economy why not fund large science, media, and computer and data projects that make us competitive.
E.g. Move government to Linux, improve our management of water, fund big budget movies…
Surely those will be higher multiplier projects than construction triggering more purchases of
Technology products, tourism, homes, educational products and so on. At the same timing
Upgrading our labou force.
Jon,
Three questions for Merv the Swerve:
1. Why should anyone believe a word you say about the economy when you are one of the usual Oxbridge crew who either caused the economic collapse, or ignored its generation-long build up and all the associated warnings?
2. Why should we think of a privatised Bank of England as anything other than a legalised extension of bank looting and thievery that yet again typifies a capitalist system?
3. Since you presided over the latest scam and did next to nothing about it, hasn’t your professional life, for all practical purposes, been a complete failure?
I don’t expect these questions to be asked (especially number 3) and even if they are that the answers will be anything more than the usual squirming evasions or useless sophistries.
Frankly, I wouldn’t trust Merv to brush my pathway. He’s just another banker apparachik.
Well, he ruined my life with his zero interest rate policy. I have no home. I have no prospect of owning a home, as zero percent interest rates have artificially forced up the price of housing. An entire generation is now living with their parents, the average age of a first time buyer is close to 40 years old. The young are living out of cardboard boxes, because that horrible swine is giving free money to banks.
I’m sure the bankers are very happy, drinking champagne and driving Mazeratis. Meanwhile Mervyn King has inflicted poverty and suffering on an entire generation. Don’t tell me it’s for my own good either. Youth unemployment is around 25%, thanks to this insanity.
I’m glad Cameron for sacking this slime. Good riddance.
Now that the experiment in creditism as a monetary system has been going on for around 40 odd years, and has predictably reached a point of systemic collapse in expansionist usury, are you considering any other systemic alternatives to QE?
Are inflation figures disingenuous of the realities of people’s true outgoings in that they ignore many significant necessary expenditures and utilise dubious hedonic quality adjusters?
Are we destined to continue with the same path of money creation through debt, sacrificing a generation or two with regularity when credit booms collapse? Does this not retard social progress?
Having missed the crisis, and then thinking it would simply blow by, how can he be the man to get us out of this mess? How can he possibly know the right time to alter course?
His policies benefit the rich and hurt the lower paid, how can he justify his knighthood and comfortable pension? (Yes it would have been worse if the banks had failed but by now we would have been in a real recovery. This recession and slow demise – will NEVER end.)
What is he doing to contain the derivatives time-bomb? *
You cannot jump-start an engine with no petrol. People and small businesses do not want any more debt. But then again, * Sir Mervyn is not really trying to stimulate the economy but just inflate away the big banks’ problems. How much of the standard of living of ordinary britons will need to be sacrificed? Ah. Of course, he’ll ‘do whatever it takes’!
Well said, Mike!
Mervyn King is part of the problem, not part of the solution.
I hope CH4 will have the guts to remind him of all the failures of his tenure as Governor.
What do you think of the morality of enforced non-dischargeable debt placed on students in a system which has legislated a mandatory requirement for significant levels of educational attainment in order to secure work?
Is the agenda of globalisation going well for the majority in countries previously considered ‘developed’?
1. Did the Bank of England realise that the British economy was based too heavily on ever-increasing property values in the years to 2008, that there was bound to be a rebound and therefore a significant lump of Government revenue, on which it was basing its forward spending plans, was unsustainable? If so, what did he do about it?
2. What technical measures can be introduced to underpin changes in banking culture that aren’t short termist, based on increasing their own personal wealth, but on increasing the wealth of the whole country?
3. How can the City – not least the Bank – contribute to re-balancing the economy, so that manufacturing, r&d, green technologies grow at the expense of financial services?
4. Financial institutions have nearly bankrupted the country, placed a massive burden on taxpayers now & future generations. Why has no-one significant been prosecuted?
5. Given that they caused the crisis, why is it that bankers continue to get paid vast sums & huge bonuses (in most cases for just moving money around) while other people get sacked, get their services & benefits cut? What does he think of the justice of this?
I agree whole heartedly with Philip.
How about penalising companies that reduce our British GNP/balance of payments, when shifting their production “Know How”to a cheaper foreign location. Why not encourage british manufacturers with financial incentives to invest in R & D and increase their world Market Share. This must be better than closing factories here. The latter closures exports money and resources to future competitors elswhere in the world.
Ask him whether he agrees that the real long term risk is seriously high inflation ignited by excessive printing of money by central banks (Bernanke). How would the bank combat such an eventuality?
How does an imploding China affect his economic outlook for the UK/Europe?
Will the UK follow the same economic path as that of Japan? If not, for what reasons do you feel it will differ?
If debt revulsion becomes a commonplace philosophy, what will become the predominant mechanism for new money creation?
That is a good question. Do you not think that it is a social balance sheets problem. The pendulum swung too far in favour of credit.Some should not borrow , others should.
Can this also be applied to quantitive and easing and austerity as Munawa commented. Is it all about balance?
How can we balance british books when competition is so vigorous that negative competition , in other words, companies which are deliberately brought down by others are seen as failures.?
sorry quantitive easing…..
Are currency exchange rates being held relatively static whilst a globally co-ordinated, matched devaluation of currencies is occurring?
My father purchased his semi-detached house (with a nice large garden) in 1957 for £2500. He was a draftsman working at Nortons and was able to do this and support five children on a single wage.
How is it that a couple earning way above the national average can only dream of doing this now?
Is it possible to change the attitude of the banks from short term gambling to long term investment?
Things like sub prime, short selling and bankers trying to earn / sorry grab as much bonus any which way they can may be good in the city, but disastrous for the country in the long run. No doubt they will think of other ways of a quick fix.
Can the Bank of England be on top of these things when it comes to our top banks.
When are you going to separate the retail arm of the banks from the investment arm?
“Has a career spent stealing from everybody through inflation to make the rich even richer been time well spent?”
Merv,
1) Do you refuse to acknowledge our housing bubble because you caused it?
In Feb 2003 while you were Deputy before you became Governor in June, the BoE surprised the markets by cutting interest rates when they were already too low.
Inflation was already over target and annual HPI at an incredible 24.9%
It was described as the biggest gamble any CB had ever done.
Is this why you refuse to acknowledge our housing bubble? If you admit it exists people might ask who caused it and the answer is you.
2) Do you understand that MEW is borrowing to fund consumption?
You have been quoted in the past as saying borrowing for consumption is wrong but borrowing to buy an asset (like a house) is fine.
Why do you ignore MEW? It is borrowing against a house to fund consumption as if it is a cash machine
3) Do you realise lots of pensioners don’t own a house?
It seems your plan is for pensioners to have to use equity release to fund their survival in the face of worthless pensions trashed by low annuities. A £100k pot gets a £6k annuity now compared to £15k in the 90′s when livings costs
hadn’t been inflated by you. What plans do you have for the pensioners who don’t own property given that household occupancy is now at an all time low and dropping
4) How large is your pension pot now?
In the 2009 annual Report you had a £198,200 index linked pension with cash equivalent of £5.35m. Since then you have ignored inflation and trashed other people’s life savings with at one time having a base rate at 0.5% with RPI at 5.2% so reducing their purchasing power forever by 4.7% in just one year.
Inflation is permanent destruction of purchasing power, when it falls without going negative it only means prices are rising less quickly not that they are falling. The rises last forever.
Obviously as your pension pot is index linked is will have grown massively while other pensioners have seen theirs lose purchasing power.
5) Are you definitely retiring, to give someone who can spot bubbles a chance?
Can you cross the mathematically challenged Charles “savers should stop moaning and spend their savings” Bean off the candidate list?
He doesn’t seem to understand compounding. If savers spend their capital they will have a loss that is compounded.
Capital spent because you have ignored inflation and kept rates low is permanent and compounded because the neither the capital once spent, nor the interest not earned by low rates cannot earn interest in the future.
Finally on behalf of everyone who doesn’t own property or anyone who needs a larger house and all their children, I would like to wish you a very short retirement.
Just to say thanks to Fred for making the effort to gather all these very pertinent points. John Snow would do well to use your post as a script. We’ll be watching for unwarranted deference John!
Just one question Merv.
Why do you waste time, taxpayers money and ink writing a letter to Mr Osborne every month informing him that you have failed to reach the inflation target?. You tell him you have failed,but then you have continued to fail month after month with no accountability or financial penalty. You should resign and repay your bonuses for failing to achieve the goals you have been set. Do you not feel any shame for your failure?
Given the role of property/property-price inflation and unearned income therefrom in UK/world-wide financial crisis does MK support land-value tax? If not, why not, particularly as the issue edges up the agenda – eg, right-wing Institute of Economic Affairs, Institute of Fiscal Studies/Mirrlees report and most FT’s Sam Brittan and a former deputy governor of BoE (name eludes me!) all come out in favour.
Does he still believe bailing out the bond holders of banks was a wise move when a managed bankruptcy keeping the banks as going concerns and protecting the tiny part of the balance sheet of banks represented by depositors protected would have achieved much of the social objectives without saddling the economy with large amounts of debt.
Why does he think he has the right to steal wealth from people ?.
You can use words like “liquidity” and “monetary easing” to make it sound like some scientific experiment but it doesn’t change the fact that creating new debt money where there is no intention to every recall the loans is just plain old money printing. The effect of money printing is to dilute the value of currency thus leaving a high proportion of the overall wealth in the hands of those in possession of the new money.
If it was being done by an elected official you could at least call it “tax” but as it is not then it amounts to a non consensual confiscation of an individuals wealth (i.e. theft).
I have to wonder if he is even vaguely economically literate: how can our economy possibly be viable in a climate of extreme moral hazard where those who over borrowed are rescued stealing from responsible savers via artificially low interest rates. How can it be sustainable to encourage borrowing against assets to fund retail spending ?. How can the UK possibly be a competitive country when house prices are so high that the next generation of workers will have little or no disposable income.
Would you be happy with Europe having more control over our banks as George Osborne seems to suggest will happen.?
Please could you ask sir mervyn what his view is on long term interest rate trends. Will interest rates remain at current record low levels for several more years, and if so what is his opinion on how this will effect the property market, pensioners, savers, and wealth creation generally in the uk?
Please ask something along these lines
Assuming a scenario where political will is moving rapidly towards a root and branch re-evaluation of how UK production (wealth creation) is financed and managed, from a technical standpoint, do we have a seam of new economic thought that in your opinion could find a fair wind. Eg: Steve Keen; Modern Monetary Theory; Positive Money et al… Or is TINA to rule that I (a member of the poor and soon to be poorer class) to live on tea and toast for ever more?
Why are you always wrong ?
Why do you still have a job ?
Why don’t you do your job ?
How many people in the UK voted to have you have such a massive influence on their lives
“Why are you always wrong ?”
Ha! Yes! I could be always wrong for a fraction of his salary!
It was the savers who saved the country when the crisis started, because if we had all been borrowers the country would have gone bust. But now, the savers are paying the price for that favour, bearing in mind that it’s the small savers who have been putting money aside for most of their working lives for security in latter life. By Mervyn King giving lower interest rates, our savings are unable to keep up with inflation, and by him printing money to help put the banks’ balance sheets right he is also encouraging inflation and adversely affecting annuity rates for pensions. This is making pensioners who have saved most of their working lives more insecure, and it is also removing their purchasing power which would have helped the whole economy. This is a subtle way of stealing off pensioners. If Mervyn King had been honest with us, he would have said we are going to steal off you by making interest rates minus 2%, for example, then I’m sure those people with savings would have given up and spent all their money and at least have had a bit of joy from it – like all those people who were encouraged to borrow and simply live for today, and then we would all have gone bust together. We can’t blame Mervyn King for everything though, despite the fact that the Bank of England is supposed to be independent of the government, because if any of this had not suited the government they would have made a lot of noise in the Houses of Parliament.
P.S. Government, don’t expect anyone to ever save again!
King is destroying the economy forever. The true damage he is doing will not be known in his lifetime.
By discouraging saving via negative real rates and devaluing assets in relation to earnings – he is telling people not to bother saving or working. Why should people save when the government uses it as a prop but steals it via inflation? Why bother working when to do so no longer puts a decent house over your head? Housing benefit is now £22bn a year as people just turn to the state for housing because their labour no longer covers it.
Pensioners retiring on such low annuities are going to be economically skint for life. They will never have money to spend in the economy.
By refusing to acknowledge the housing bubble he created and trying to pretend it doesn’t exist, King is propping up house prices which means that as each house is sold the debt on it increases. People who bought pre-bubble at a sensible earnings related price will be replaced by someone taking on a much larger debt in relation to earnings to buy the same house. This means their spending power is crippled for the life of their mortgage. Note that to try pretend people can afford bubble house prices mortgage terms are being extended. In the last Nationwide report they said the average mortgage term had risen from 25 to 28 years so the economy is wiped out for longer. Joint income mortgages mean both parents are working instead of one being out spending money midweek when house prices were cheaper and people had disposable income instead of servicing too much debt.
Banks are a drain on the real economy. The more money they lend, the more debt needs servicing, the less disposable income people have. A cynical person could think King’s one remit was to turn the UK into a population of debt slave zombies and make the banks as much profit as possible for generations. Of course this also suits the land owning aristocracy. High house prices increase the value of land. Notice King got his knighthood early, while speaking about hard times for the man in street. High asset prices and low wages favour land owners, low asset prices and high wages favour workers.
Can John Snow ask the following question did the governor believe that Gordon Brown economic policies had ended the boom and bust cycle ? and if he didn’t why did not tell or warn the policticans that such a measure can not be prevented.
Given that inflation has consistently come in above target, please ask Sir Mervyn whether he thinks that a stronger pound would have helped to deliver an infaltion rate closer to the target – and whether higher base rates might have been a way to achieve that.
Can you ask Merv whether he can see any economic circumstances under which QE will not be unwound from the B of E balance sheet? If not does Merv expect this to happen in his lifetime?
“Given your record in controlling inflation, are you pleased that the Bank of England pension scheme moved to predominantly index-linked assets in recent years?”
Sir Mervyn,
During a large part of the 2000s the UK was importing deflation from China which was artificially depressing the UK CPI figures. You ignored this external impact therefore keeping the price of money artifically low and causing a bubble in, amongst other things, house prices.
In the period since 2008 the opposite has happened and the UK has been importing inflation, partially because of the low level of Sterling but in this period you have chosen to quote this external influence as a reason to keep policy loose and over a very long period miss the inflation target.
Why the inconsistency?
What part has the BoE therefore played in the economic malaise of the last 4 years?
And finally why target inflation in a small open economy in the first place? Did nobody foresee that this might be a problem?
Do you think the BoE will still have credibility as an independent inflation targetting institution when the dust has settled?
Thanks
Unemployment in my borough, Barnsley, is high and has been for many years now, not due to a lack of work needing to be done, or a lack of desire to work, or even a lack of resources. But because of a lack of currency in the local area. What will you do to ensure we have enough currency in the borough to drive the trade machine and create productive employment.
Would you personally object to a competing demurrage currency/stamp script like the one used in the Austrian town of Worgl back in 1932? A currency which within a period of 3 months brought full employment and prosperity to the town. A currency which was subsequently outlawed by the Austrian central bank just 2 years later, to ensure the central bank had a monopoly on currency issue.
Why are you monetizing the governments deficit by QE?Or why are you printing inflation to steal from workers and savers to finance a government deficit?
Why are you aiding the destruction of capitalism by QE to enrich the top 1% while destroying the middle and working class?
Why are you trying to stop deflation when ordinary people need deflation?Why do you think its ok to create inflation to save debtors while pushing ordinary people into starvation?
Sir Mervyn,
Libor fixing : missed.
Housing bubble : missed.
Derivatives dangers : missed.
If you can’t see the present, what chance is there of you setting the correct course for the future?
Before this crisis you spoke much of “moral hazard”. What lessons do you think current monetary policy are teaching the people of Britain?
Twenty years ago I was awarded what seemed like substantial damages for injuries in a car accident. The intervening period of inflation, especially the recent zero interest rate policies and money printing, has made those damages seem pretty pathetic. What would you say to people like me who have seen the monies they were told would pay for latter years’ care eroded to trifles, robbing us of any sense of security, whilst you luxuriate in safety of your index linked, pension pot?
Deary Mr King,
Please explain how providing banks with what is effectively free money, so they can speculate on commodities, helps to create demand and jobs in the UK economy?
Why would banks waste their time and your/their money recycling QE money in long term business investment when they can gamble on short term returns (the exact same problem that landed us in this parlous economic position).
Regards
Chris Mordain
This was one of the most well constructed, informative and balanced interviews that has been conducted on Channel 4 for some time. It made sense, however it affected the person receiving the news, it appeared to be without political side.
Mervonomics -giving financial incentives to banks on top of QE classic LOL
The Bank of England Governor live on Channel 4 News…
Old ‘News’ now Jonny !
£350Bn of QE but where is the growth? Sorry John this interview should have been conducted by Fisal – liked your socks though
I hope I am not the only one who squirms and sighs when politicians and the BoE governor talks-up the fact that he has pumped £billions into the economy – when you know it goes directly into the hands of these CEO bankers – apparently ONLY charged with using this capital to lend to SMEs and home buyers.. ummm!!
I don’t get it! It’s clear to me, I hope others too, that ethical policies and changes in attitudes are stimulated only by chaging those who occupy that Leadership seat – i.e the CEO bankers. Why give these fraudulent CEO bankers more money when neither the BoE government nor any Politician has even asked these CEO bankers to see the balance sheets of these tax-payer bailed-out banks from the previous decade?
Again, the media does not seem to be asking the RIGHT questions here! If only the news media focuses more on getting these politicians to answer questions from REAL folk who still have both feet firmly on the ground. Sorry, BBC Question Time is NOT sufficient for the desperate times we are facing and the WEAKNESS in policy building ideas and solutions we are getting from all three main parties.
SHAMEFUL!
Dear Jon,
The next time you get the opportunity i would very much like you to ask either the PM, the Chancellor or their equivalents in opposition who we are borrowing all this money from??
As i understand it we are borrowing about £6 Billion pounds every week but no one ever says who is lending us the money??
I assume that it is the Bank of England by way of printing more money or QE as they have so called it, but isn’t the B of E a privately owned company, exempt from the disclosure requirements of the companies act, i.e to list its shareholders and provide evidence about its turnover, balance sheets etc??
If so, who are we actually indebted to?? Who has control of the purse strigs and therefore the ability to dictate policy.
I think that most people would be surprised to learn that the B of E or BOEN as it should be known is not owned by the people or the govt but that it is a privately owned subsiduary of the Bank of England, which was set up in 1977 and is entitled to issue cash, then lend it and charge interest to the government, which means essentially its a private business owned by very wealthy people with enormous hold and influence over the governing parties of this country , with no accountability and totaly anonymity???
Why on earth would any govt allow a private company to print its currency notes and then charge them interest for doing so?? Why dont they print it themselves for free??? Because the bankers wouldnt make any money from that!!! or be able to dictate to the borrower, the govt in this case.
We need to get to the root of this issue before anything can be done about the way in which our purported “democratic” society is run!!!
Regards
Alex.