The BoE Will Be Graced with a Superhuman Governor
Yesterday the financial press was aflutter with reports about the nomination of the current chairman of Canada's central bank, Mark Carney, as the new governor of the Bank of England.
Most of the reports were gushing about the alleged ability of this central planner, to, well, plan better than his peers. Apparently he is needed now to 'rescue' the UK. A good example for this is , from which we quote a few excerpts below:
“Carney is a fantastic central banker,” Edmund Clark, chief executive officer of Toronto-Dominion Bank (TD), Canada’s second-biggest by assets, said in an interview yesterday. “He’s clearly been recognized around the world for that, and so Britain, from its point of view, did a smart thing.”
A day after watching one of his four school-age daughters play ice hockey in downtown Ottawa, Carney, 47, was named yesterday by U.K. Chancellor of the Exchequer George Osborne as the first ever foreigner to run the 318-year-old Bank of England and its youngest boss in more than half a century.
“We needed the best, and in Mark Carney we’ve got it,” Osborne said at the end of a 10-week official search after the Canadian’s virtually unique blend of experience in banking, policy making and regulation beat out other contenders.
Carney “is head and shoulders above the other candidates,” David Blanchflower, who helped set U.K. interest rates until May 2009 and now teaches at Dartmouth College in Hanover, New Hampshire, said yesterday on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays and Vonnie Quinn. “He’s going to come in with a big broom and sweep clean at the Bank of England, which is what is needed.”
“In an environment of international financial regulation, having somebody who has a strong track record in that is clearly important,” Donovan said. “The nationality is entirely incidental.”
Well, we do believe that 'nationality is entirely incidental' when someone has been with Goldman Sachs for 13 years. Ex-Goldman employees have taken over important regulatory posts all over Europe after all, including the presidency of the ECB.
Hundreds of articles in style and tone of voice akin to the above have appeared in the financial press yesterday. We have yet to come across even a single critical remark. It astonishes us to no end that central bankers have become such exalted figures in our modern society. How can bureaucrats inspire such unrestrained awe? Consider some of the statements above.
See, he is human (watching his daughters play ice hockey), but in reality, this bureaucrat is a regular super-human. What would we ever do without irreplaceable, exalted personalities like him? How could the market economy ever function properly without such people 'directing' it?
Allegedly Carney has left Canada in ruddy economic health. No-one deigned to mention that Canada owes its seeming economic health largely to high commodity prices these days, which to be sure owe far more to the actions of Ben Bernanke and the PBoC than to Mark Carney. What is 'incidental' is that Carney happened to occupy the post of central bank chairman in Canada just as this phase of high commodity prices occurred.
However, what will this 'giant of central banking' (he was voted 'central banker of the year' by some magazine a year or two ago) really leave Canada with?
How about: the biggest credit bubble in the country's history, one result of which is that over 30% of Canadians confessed in a recent survey that they have trouble sleeping due to worries about their huge debts?
How about a real estate bubble that has in places grown to such proportions as to stand as almost unique in human history? A bubble that absolutely dwarfs the real estate bubble that has come to such ignominious grief in the US and elsewhere?
His 'great feat' consists of having nudged the central bank's administered interest rate to all of 1%. Well, BFD. We realize of course that in order to arrive at this carefully planned, 'just right' one percent interest rate, countless meetings had to be held and reams of economic statistics had to be poured over. And yet, it is almost certain that this interest rate deviates from the natural rate indicated by society-wide time preferences and therefore distorts prices across the economy and causes malinvestment– which as it were should be blindingly obvious considering the real estate bubble.
We should not cower in awe before these bureaucrats, who have on the whole probably held back economic progress by decades and created untold misery in many regions of the world, while in the main greatly benefiting the banking cartels over which they preside.
That Mr. Carney's stint at the Bank of Canada is today fondly remembered and destined to become part of its lore of 'success' is a complete coincidence. Had Mr. Greenspan vacated his post at the Fed just five or six years earlier than he did, he would today also be remembered as one of the 'greatest central bankers ever', simply because his chairmanship coincided with a big boom.
This has nothing to do with the 'planning abilities' of these men. This is not to say that Mr. Carney is not an intelligent and talented man. He undoubtedly is that, which is already proven by where his career has led him. However, it is the height of conceit to believe that anyone can 'plan' the economy, or know what the proper interest rate and the proper height of the money supply should be. These are things that can only be optimally determined by the market. The reality is that we have a socialistic monetary system that is in the process of failing – we are witnessing what are probably its death throes. Carney will now head a central bank that has bought up almost one third of the government debt in issue, not surprisingly to no discernible positive effect. He will likely find out that this sinking ship will prove more difficult to steer than the one he is leaving.
Even Canada's finance minister Jim Flaherty stares in awe at the super-human bureaucrat who is now leaving his employ …
(Photo by Fred Chartrand / The Canadian Press)
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