UnGibberish From Bank of England Governor

Charlie Rose recently hosted the American-accented, Canadian citizen Bank of England Governor, Mark Carney. He was diplomatic and reserved as you’d expect, but much more straightforward than we’re accustomed to with U.S. Fed chairs, especially the so-called Maestro.

If you’re interested in macro and big picture economic policy, I think it’s worth watching and listening. I think it’s better than time spent on so many Op Eds and talking head perspectives.

The most important thing I heard concerned asset prices. Though he never used the “B” word, he made it amply clear that the BofE thought British housing prices were high and that they would take macroprudential measures to curtail untethered price increases.

In the wake of the recent financial crisis I thought the Fed would finally acknowledge the need to consider asset price bubbles. Experience thus far has not borne that out. It’s an important topic, especially if you think asset price bubbles are disruptive to output and redistributive upward (wealth-concentrating).

There are sensible measures that can be taken to direct low real rates toward the real economy while reducing the impact on asset prices. Mortgage underwriting standards and margin requirements come to mind. Yet the U.S. Fed and other agencies seem bent on supporting the prices of assets in order to shore up bank balance sheets and provide profitable collateral for other financial sector intermediaries.

Also, he stresses that monetary policy can be useful in extreme circumstances that that it is the difficult, fundamental policies regarding education, infrastructure, trade and financial regulation that matter in the end – “bigger, tougher issues that you can’t distill into a  soundbite… that you have to execute year after year after year”.

Anyway, I think Carney does a great job of describing the global macro issues and the interaction of monetary policy, fiscal policy, and regulation. He covers some important ground if you listen attentively.

Note: Rose assumes the audience has the requisite background to understand the interview. The discussion goes straight into things without stopping to explain background, terminology, and underlying frameworks.

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