Has Merv swerved the blame game?
- 3 May 2012
His exact words were: "Whether in this country, the United States, or Europe, there was no unsustainable boom like that seen in the 1980s; this was a bust without a boom".
Robert Peston commented in his blog: "The moment he said it, he raised a few hackles. His former colleague from the BoE's Monetary Policy Committee, Andrew Sentance, tweeted: "disagree with Mervyn King that fin crisis was bust without a boom…it was just very long boom!"
RedHairedGirl said bluntly: "Not true. King is in denial about his own culpability. The boom was everywhere – a credit bubble the largest for 100 years. The growth was the illusion since it was based on ever larger debts – state, personal & corporate. King is famous for stating it is not the job of the Bank of England to control assets prices when warned about the housing bubble."
For many, King's mistake was not raising interest rates sooner when emerging markets were importing deflation through cheaper manufactured goods. Inflation numbers may have looked controlled, but domestic inflation was higher. When this situation reversed and emerging markets imported inflation, through higher commodities prices, inflation figures leapt up.
Certainly Peston believes that there has been a boom over the last 10 years: "1) The massive increase in bank lending, from about 100% of GDP to 600% of GDP over 20 years or so; 2) The trebling in house prices in the 10 years before the 2007; 3) Consumer spending growing faster than the economy, fuelled by borrowing, in the 15 years before the crash; 4) The UK importing more than it exports every year since 1983, not earning its way in the world."
King did go some way to admitting a degree of responsibility for the crisis: "With the benefit of hindsight, we should have shouted from the rooftops that a system had been built in which banks were too important to fail, that banks had grown too quickly and borrowed too much, and that so-called 'light-touch' regulation hadn't prevented any of this," King said.
However, he added that the decision by Gordon Brown to strip the Bank of England of its power to regulate banks in 1997 tied his hands: "Our power was limited to that of publishing reports and preaching sermons. And we did preach sermons about the risks." With hindsight, King does not appear truly to believe that he was at fault.
King was marginally more bullish on the UK economy than he has been in the past, forecasting a steady, slow recovery. However, he urged speedy banking reforms.
However, the real question is whether King's credibility remains in tact. dragonfly101 on the Telegraph site sums up the views of many when he says: "It seems to me all his predictions have been proven consistently wrong. If I were a betting man – and I am – I'd bet against any of his future predictions. In fact his consistency in being wrong might be useful."
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