Friday, 25 October 2013

Starman Waiting in the Sky

Britain’s star man central banker, Mark Carney, has hardly blown our minds, getting off to a pretty slow start.
Apologies to David Bowie
Since he arrived in July the economy has continued to recover and all the attention has been on Ben Bernanke at the Fed - and the talk of tapering QE in the US.  In his first few months he has taken the first tentative steps – issuing some forward guidance, taking on the funding for lending scheme and the Help to Buy scheme.  But today for the first time Mr Carney stepped out from the shaddows.  The occasion was a 125th birthday party for the Financial Times, so Mr Carney was able to talk to a well-informed audience rather than having to sound bite for the benefit of the BBC’s simple minded economics experts.  The back drop to his speech is that the UK is the best performing economy in the G7 with annual growth of about 2% and rising, relatively low unemployment and no prospect of a deflationary bust - that is still a possibility in Europe, Japan or even in the US.

Mr Carney’s job description has been thoroughly extended to cover: interest rates, QE, the housing market and bank regulation.  There is no doubt that he is the man who holds most of the cards, step aside Mr Osborne.  So it was interesting to hear what he thinks is going on in our economy and what we should do next.  The gist of what he said was that:
1. The economy was recovering and that this improvement is starting to look sustainable
2. The banks have mended themselves but there is more that needs to be done
3. The financial service sector is important in many towns and cities and is not a minority sport of a few toffs in the City (whatever Mr Miliband thinks)
4. The growth of shadow banking is a worry but the Bank of England are ahead of the game and will regulate this market finance sector more closely
5. Britain need’s to get used to having a disproportionately large banking sector and this is a good thing (he offered the insight that our banks may have balance sheet nearly 10x the size of our economy in 2030
6. He believed that the Bank of England would be able to provide more liquidity in times of stress and that this liquidity could be provided against a much wider range of collateral
7. He believes that our unique reliance on banking and the economic advantage that flow from this require us to protect this industry with care – but importantly we should be determine to grow our share of global banking an remain the geographical hub for European capital markets
8. The bank would play an important part in global and regional regulation – bring forward global solutions whilst fending off unwanted (European) interference
It was great to hear this smart Canadian stand up for the UKs best and biggest industry.   It was also encouraging to hear a public official espouse a real vision for the future for our banking sector, a vision, which has growth at its heart.  Mr Carney said the BoE had a duty to “keep up” with events and provide a backstop to private markets to enable greater dynamism in financial services. He said five words described the BoE’s new willingness to provide liquidity if banks needed it. “We are open for business,” the governor said.  “The UK stands to benefit because of London’s place at the heart of the global financial system. Properly structured, this creates investment opportunities for British savers, reinforces trading ties for UK firms and improves access to credit for the real economy across this country.”  “The Bank of England’s task is to ensure that the UK can host a large and expanding financial sector in a way that promotes financial stability,” the governor said. “Only then can it be both a global good and a national asset . . . helping to renew globalisation to the benefit of all.”
If you want to listen to the speech try here
 It’s taken five long years for anyone of stature to face up to the popularist notions that banking is a rotten business that has ruined us all.  Mr Carney’s riposte to these ill-informed doomsayers was polite, succinct, honest and up-lifting.   The proof of this Starman’s brilliance will be on five measures:
1. Can we create a lasting recovery that pervades all regions of the UK?
2. Can we grow our financial services sector so London and the UK remains the world’s  premier hub for banking and capital markets?
3. Can we unwind £375bn of quantitative easing without unleashing the UK’s old enemy – inflation?
4. Can we make our expanded banking and financial service industry safe enough to withstand future shocks?
5.     Can we get RBS and Lloyds Banking group out of public ownership and lending again?

I am sure his answer would be an Obamaesque  "YES WE CAN"!

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