Courtesy of Mish.
Mark Carney, Bank of Canada governor and surprise pick to replace Mervyn King as incoming governor of the Bank of England, dove straight into the monetarist looney bin today with policy proposals.
The Telegraph reports Mark Carney hints at need for radical action to boost ailing economies
Mr Carney, the current Bank of Canada governor who takes over from Sir Mervyn King next June, said central bankers should consider committing to low interest rates until inflation and unemployment met “precise numerical thresholds”, or even changing “the policy framework itself” to stimulate a desperately weak economy.
His words were directed at the Bank of Canada but will be seen as a hint that he will push for radical action in the UK, where the economy has been stagnant for two years. On his appointment, he said that he would be going “where the challenges are greatest”.
Addressing the Chartered Financial Analyst Society in Toronto, Mr Carney said that in major slumps: “To achieve a better path for the economy over time, a central bank may need to commit credibly to maintaining highly accommodative policy even after the economy and, potentially, inflation picks up.
“To ‘tie its hands’, a central bank could publicly announce precise numerical thresholds for inflation and unemployment that must be met before reducing stimulus.”
He added: “If yet further stimulus were required, the policy framework itself would likely have to be changed. For example, adopting a nominal GDP level target could in many respects be more powerful than employing thresholds under flexible inflation targeting.”
The proposals would be anathema to Sir Mervyn, who has publicly refused to abandon the inflation target or commit to long-term low rates.
Economic Lunacy
Only arrogant fools think they can overpower markets without causing even more severe problems down the road.
If fiscal and monetary stimulus worked, Japan would be a glowing success today instead of having a debt to GDP ratio approaching 250%.
The US housing bubble is another case in point.
By holding interest rates too low, too long Fed chairman Alan Greenspan bailed out banks then deep in hock with nonperforming loans to South America and dotcom companies going bust. The end result was a housing bubble far bigger than the dotcom tech bubble that preceded it….
