Carney the archer

Do I have any sympathy for Mark Carney? No, of course not, he’s a technocrat pretending he has many strings to his fully independent bow, whereas in reality the bow itself does not exist.

In January 2016 he was a tad nervous:

http://www.telegraph.co.uk/business/2016/05/24/interest-rates-could-go-up-or-down-after-brexit-vote-says-mark-c/

Some comments Mr Carney made to MPs are of interest:

‘Mark Carney warned that policymakers would have limited space to stimulate the economy after a Brexit vote because a sharp slowdown in growth could be accompanied by a spike in inflation.

Mr Carney also said that mortgage costs for homeowners could rise even if the Bank cut rates to boost demand.

A Brexit could push up the perceived riskiness of lending to households “for a period of time”, he said, which could force banks to rein-in lending and pass on higher costs to customers.

Mr Carney said policymakers’ response to a Brexit vote would depend on the strength of “countervailing forces”on the economy.’

Summary: he didn’t have a clue what might happen if the vote was to leave. Not a mention of gilts and their yields, how odd. Currently gilt yields are at record lows, a great time for holders of these ultra-safe investments. (As long as one ignores sterling’s trajectory of course). Sadly, overseas investors are looking at sterling, and indeed are pulling funds from the UK already, and Brexit will be used as a convenient scapegoat of course. The UK’s problems run so deep that in or out of the EU, this little island will sink under its debts before too long. You think a sterling slide will help exporters? Where do most of the raw materials come from ? What about the imports? The UK trade deficit is dire, and will not recover in my lifetime.

However, recently Mr Carney has been told to appear more positive about matters. No longer is he concerned about rates rising (of course not, currently gilts are well bid). Here’s a recent piece:

http://www.reuters.com/article/us-britain-eu-boe-idUSKCN0ZG26Y

Some quotes:

‘In his speech, delivered in the Bank’s ornate Court Room, Carney said there were limits to how low the Bank could cut rates. “As we have seen elsewhere, if interest rates are too low or negative, the hit to bank profitability could perversely reduce credit availability or even increase its overall price.”

Carney said a first wave of contingency measures drawn up by the Bank and Britain’s finance ministry were “working well”.

He also said the Bank had “a host of other measures and policies” to steer the economy and Britain’s vast banking sector through the shock triggered by the referendum result.

Other central banks hold a clue to the options open to the British central Bank.

The BoE, which purchased small quantities of corporate bonds when it first started its quantitative easing program in 2009, could follow in the footsteps of the European Central Bank by buying them on a larger scale.

The BoE could also take further credit-easing steps to reduce the cost of bank loans to help spur investment.

The Bank will hold weekly sterling liquidity auctions between now and the end of September – instead of monthly – as a precaution in case banks run into problems getting hold of cash.

But Carney warned that central bankers on their own would not be able to eliminate the referendum shock and Britain’s economic growth prospects would be driven by “much bigger decisions; by bigger plans that are being formulated by others”.’

So, more stimulus, conveniently timed to coincide with the first signs of capital flight from the UK. More electronic units of sterling created from thin air and used to buy up more debt. I am sure the world’s largest investors will react enthusiastically to the prospect of a (barely concealed) admission of the UK government and central bank that its national wealth can be ‘stimulated’ merely be printing new money. How easy it is to be a technocrat, even if all a quiver.

Mark Carney

The puppet of Her Majesty’s Government, themselves the puppets of the masses. Think about it.

No arrows, no bow, so he’ll fight bare knuckle, versus the global capital markets. Good luck to him.

 

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