Clear blue water between Carney & Osborne
I understand from Whitehall sources that Mark Carney “does not believe the UK recovery is real”. It’s amazing how sometimes, when you blog about something to do with the hard data, a sympathetic voice emerges briefly from behind the skirting board to tell you you’re on the right track….and even wish you luck.
During last Monday (when the tip plopped into my inbox) I pondered the source, and asked two other people for views. But then yesterday, this very odd piece from Ambrose Evans-Pritchard arrived on the financial page of the Telegraph’s website:
Ignore the bizarre use of the word “never” (it’s just part of an odd phase AEP is going through about QE) and focus instead on what the ageing scribe has to say about how things are going in the Septic Isle:
There are much bigger ramifications of the above assertions than the one I’m on about, but events are shaped as much by people as serendipity. Carney is saying “No way am I pulling the plug on stimulus until there’ve been several interest rate adjustments.” According to my sources, this is because he doesn’t think there’s a case for rate adjustment...because he doesn’t think the recovery is real. He’s not expecting to have to raise rates any time soon.
Osborne would like rates to rise a couple of times before next year’s General Election…..just enough to get forgiven by the old for Zirp, but not too much mind, as once Pandora’s out of the box, Britain could find itself with an unmanageable debt in very short order….and young voters unable to cope.
Clearly, Carney also has his Deputy Charlie Bean onside….the gilts will only be sold back once the recovery is on a firm path. But Mr Bean doesn’t think the path is firm either.
I was informed three months ago that the new Bank Governor thinks George Osborne to be a clever politician when it comes to presenting “facts”, but a wideboy at heart. I see this latest development as confirmation of what I have sensed throughout this year so far: the bank’s senior movers (and especially Carney) are at odds with the Coalition’s interpretation of the UK economic data to hand. I blogged about this yesterday in the context of looking at real sales data, not fluffy opinion. That Mark Carney is prepared to admit the Bank of England’s toxic purchases may simply be sealed forever in a lead-lined vault somewhere is, to my mind, his way of saying, “The recovery is bollocks, and that’s official”.
I’m afraid my grasp of UK gilts isn’t extensive enough to gauge what the longer-term ramifications of doing such a thing are; to me, an expansion of the central bank’s balance sheet with two tons of Russian cement futures is a sign of poor fiscal and economic health…but whether it matters or not when we’re talking about poor-value gilts, I’ve no idea. AEP is suggesting that by doing it, the Bank is wiping out a proportion of the National Debt, and he concludes that yes, in economics, sometimes there is a free lunch. I’m not so sure – and if the lunch is free at all, it’s going to be on the fiscal job number, not the economic one.
But as much as any BoE Governor can ever nail colours to the mast, Carney is doing it now. In my view, he’s doing what a governance-based civil servant should always do: ignore the electioneering in favour of the longer term. But the bottom line is still that, although he can take the crap gilts off the balance sheet, at some point down the line a debt is a debt.
Footnote/tip: Try finding out how much gold the Bank of England now holds. The BoE site runs you round in circles. Last year, strong rumours within the gold sector suggested that out of the 505,000 gold bars we held in February 2013, 105,000 had gone by June. Looking at FOI requests on the subject suggests that everyone else has the same problem as me: those in the know are concerned that we, um, shouldn’t know.