I’ve never been much of a Mark Carney fan but one cannot help but feel sympathy for the guy.
As he sat in front of the cameras yesterday giving his briefing after the latest Bank of England MPC meeting along with the publication of the quarterly inflation report he looked like the complete incarnation of the bon mot that if you don’t know where you’re going, you don’t know when you’re lost. Not that he isn’t, to some extent at least, a maker of his own misery. Had he been a good boy and kept his trap shut in the run up to the Brexit referendum he might have contributed more towards a remain vote than his scaremongering did to support the leave campaign.
The current blockbuster “Dunkirk” reflects the British people’s often bloody-minded stubbornness in the face of logic. How anybody could decide to try to evacuate 400,000 troops and escape with 355,000 of them rather than seek terms with the advancing enemy is one of those many mysteries to which we now know the answer but which at the time looked like total madness. I cannot but remind you that the a mere 2.5% swing in the ballot would have brought a clear and undisputed opposite outcome and the question that historians will ask is not why 49.5% of the electorate voted to leave but why the key 2.5% that swung the result went for out and not for in. In that analysis, no doubt, the names of Jean-Claude Juncker, the muppet-in-chief, and of Mark “The Magician” Carney will both loom large.
Paint it Black
Forget London and think of the voters in Sunderland, Dudley or in Oldham, the descendents of the Operation Dynamo survivors, who will not have been impressed by the sound of a Canadian accent telling them how to vote while conjuring up images of impending doom and destruction were he not to vote to remain. I’m afraid that’s how the much-vaunted Dunkirk spirit manifested itself in June 2016 and, quite extraordinarily, both Carney and Juncker are still in office.
The MPC is now faced with the task of setting monetary policy in an economy with more moving parts than a Swiss Glockenspiel. Not only that, but it has to do it in the dark while wearing a blindfold. The real problem was nailed by Lord King when asked what he thought of the post-Brexit vote prospect of a weaker pound, rising inflation and falling house prices. He replied with something along the lines of “I can’t see what’s the problem; that’s what we at the Bank of England spent years trying to engineer…”.
Periods of negative growth, recessions, are as much part of the economic cycle as are periods of expansion. The key problem is that in the age of non-confrontation, of protection from all evils and of safe spaces, recessions aren’t allowed to happen anymore. Perish the thought that a bout of economic gastro-enteritis clear out the clogged up socio-economic gut. Carney, along with most of his peers, sees the role of the central bank and of monetary policy not to smooth out economic cycles but to prevent them from happening. We should thus not be proud of the length of any unbroken economic expansion but worried that when is does turn, which inevitably it will. It will lay bare far more nasties than anyone had expected and that the financial system can bear. We saw it in 2007/2008 and we will see it again in 20XX.
You Can’t Always Get What You Want
Carney pointed to the uncertainty that Brexit is causing and the negative impact on capital investment. If it’s a problem, which it surely is, then the last thing that’s needed is the governor of the Bank of England sitting in front of the cameras wearing his finest Eeyore face. That said, his is a deeply difficult job because whatever he said about the fall in investment and consumer spending is quite true. But is that not the same consumer spending that is locked in rampant and uncontrolled consumer debt, which also worries the Old Lady? There is no form of methadone to help to wean people off the addiction of buying things they don’t need with money they don’t have. Carney’s famous – or is that infamous – and desperately unnecessary rate cut immediately after the referendum will continue to hang around him like a fart in a space suit. Monetary policy formulated in a fit of pique is worse than not good. Oh, rates and asset purchase programme remain unchanged with two dissenting votes - they wanted a raise in the bank rate - and Andy Haldane, despite some of his recent comments, voting for no change.
However, back to my opening observation that one cannot but have sympathy for the man. Brexit is a shambles. Malta’s PM, Joseph Muscat, was on the tapes suggesting that he is not the only EU leader who believes that Brexit will ultimately not happen although the muppet-in-chief, asked whether he thought the UK might end up staying in, answered with one of his famously diplomatic eruditions by simply saying “No!” I suppose the fact that he still is in office condenses all that is wrong with the EU and how little Brussels eurocrats care beyond their own tax-free status and inflation-linked pensions.
Start Me Up
Today also brings us the US July employment report with the central non-farm payroll number. Consensus is for 180,000 new jobs to have been created, which seems to be the consensus number every month now. The number, month in, month out, seems to be a bit of a crap shoot but the revision of the previous month’s figure is where the truth is to be found. June gave us a huge 222,000 headline number of jobs created. A big revision in either direction is what, in my mind, should be moving markets. Labour force participation and underemployment rate are now becoming integral parts of the monthly employment figures but they have turned the payroll report into a game of 3D chess, which gives everybody much to talk and to write about but I’m not sure that they really add much to our understanding of the prospects for future growth or contraction. Unemployment is a five-star lagging indicator….
It’s All Over Now
Alas, it’s that time of the week again and all that remains is for me to wish you and yours a happy and peaceful weekend. While southern Europe is dying, and I mean it, in terrible heat I’m hoping for a few dry days so that I can finally mow the lawn and take a machete to the rain-flattened jungle that was once my prized garden. This weekend also sees the beginning of the World Athletics Championships in London, which will bring with it the swansong for the incomparable Usain Bolt. Bolt has done for running what Roger Federer has done for tennis which is to leave us with the feeling that we have been truly privileged to have lived in their age and to have experienced their entire careers. Before Bolt we feared that we’d be watching not much more than 100 and 200-metre drug running; let us hope that it doesn’t revert to that as people frantically try to chase down his amazing records.