Dear Mr Carney....Memo to the new Bank of England governor

Mark Carney

Photo source: Guardian

This article originally appeared on IPPR. Click here to read it in full.

Welcome. I write to urge you to cool expectations that Britain can live by monetary policy alone.

Our political establishment is reluctant to discuss this in public, but Britain ranks alongside Japan as the most indebted of the larger economies. McKinsey estimates UK private debt at an extraordinary 427 per cent of GDP, vastly exceeding gross public debt at 94 per cent of GDP. By contrast, American private debt is half the UK’s, at 198 per cent of GDP.

Since 2008, the US has succeeded in deleveraging private debt by 14 per cent of GDP. British private finance sector debt has continued to grow since the crisis; and, as a consequence of the government’s policy stance, public debt is rising too.

Public and private investment has slumped, unemployment and underemployment remain far above longer-run normal levels, deflation threatens, and austerity is shrinking UK incomes. This makes it hard for indebted private firms and households to deleverage, invest and spend.

Monetary policy alone is ineffective: Britain is too indebted to respond to monetary stimulus. As McCulley and Poznar have argued, fiscal policy can solve monetary policy’s problem by becoming a borrower and spender of last resort. And monetary policy can solve fiscal policy’s problem of government debt by monetising some portion of it.

Given Britain’s huge private debt, coordination between monetary and fiscal authorities is essential if the UK is to avoid decades of stagnation – or, worse, an Irving Fisher-style debt-deflationary spiral.

So your first task, I suggest, is to persuade the chancellor that financial stability depends on this coordination

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3 comments to Dear Mr Carney….Memo to the new Bank of England governor

  • David Murray

    Commercial banks create 97% of the money in circulation in the UK as loans. The same banks decide where those loans go. So those banks, not government, have control of 97% of the money supplied. How then is it possible for the government to have a monetary
    policy of any significance? Is QE the governments attempt to control the money supply?

  • David Murray

    Dear Anne,

    Please provide reference to where ‘McCulley and Poznar have argued, fiscal policy can solve monetary policy’s problem by becoming a borrower and spender of last resort. And monetary policy can solve fiscal policy’s problem of government debt by monetising some portion of it.’

    I’ve searched but found few references to Poznar and Mcculley other than regards shadow banking.

    Thank you

  • What you are talking about is Mortgage debt from the Private Banks. to the population. This is scandalous FORGERY. It must be dealt with severly.

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