AS FAR AS their backgrounds are concerned, central bankers and football coaches probably have very little in common. As far as their respective jobs are concerned, there are even fewer similarities. And yet, they are both burdened with the same basic problem, namely the weight of expectations placed upon them by people who believe they should have all the answers.
(I acknowledge the grammatical uncertainty of the previous sentence. Is that people who believe they have all the answers themselves or people who believe central bankers should have them all? Well, as equivocal as it is, it can be either or both.)
When it comes to being a hero or a villain, the boss chap of any central bank occupies that space governed by Heisenberg’s Uncertainty Principle – a lesson that Mark Carney, the new governor of the Bank of England, appears to be learning at speed.
I’M NOT SURE whether he actually uttered the words, but Alan Greenspan was reputed to have said: “If I’ve made myself clear, then you’ve misunderstood me.” When Carney the Magician, a central banker supposedly imbued with superhuman powers, arrived at the Bank of England – not the Bank of Great Britain, so I’m afraid that our Scottish colony has to dance to its tune too – it was expected that he would instantly produce rabbits from hats.
So he announced that rates would remain flat for some time to come under the umbrella of something he termed “forward guidance”. Consumers took heart, instantly began to consume and now, just two months in, he is facing growing retail sales, rising house prices and an overall desirable feel-good factor in the UK economy.
But what next? The patient who has spent nearly five years on a ventilator has been breathing more easily for a while now. But if the ventilator is switched off, does he continue to breathe or does he splutter, gurgle, and then turn up his toes?
More to the point, is the recently announced easing of the banks’ liquidity rules a sign of success or one of failure?
I suppose that, strictly speaking, the authorities have acknowledged, albeit tacitly, that their grand plan for changing the way banks work has proved to be something of a failure. The overall repercussions for business and finance of a society in the process of deleveraging have proved to be economically unsatisfactory – let’s cheekily fall back on that nonsensical exclamation that austerity isn’t working – and that the best that could be done was to move the debt around.
The authorities have acknowledged that their grand plan has proved to be something of a failure
WILLIAM MCCHESNEY MARTIN Jr, the longest-serving Chairman of the Federal Reserve System from 1951 to 1970, is most usually remembered for his wisdom that it was his duty to remove the punch bowl just as the party was getting going.
Alan Greenspan, once Time magazine’s Man of the Year and believed to be the most powerful man in the world, will go down in history as the man who forgot to remove it – or decided not to do so – and then watched on as the partygoers got totally lashed.
Ben Bernanke, still with history’s judgement ahead of him, has spent most of his tenure at the Fed franticly refilling the bowl in an attempt to stop the party from fizzling out.
Although monetary policy committees tend to be populated by some of the most astute economic and statistical brains in their respective countries, they are not infallible and their attempts to use their statements and speeches to influence economic behaviour do not as much fall on deaf ears as on no ears at all. The best that a central bank can hope for is to use monetary policy in order to fine-tune the economy in its progress in the direction in which it is already going. Its ability to actually change the dynamics, if it exists at all, is severely limited.
GOVERNOR CARNEY WAS seen by many in the markets as a man who had landed at the Bank of Canada at the right time and who had benefited from the conservatism of his predecessor, David Dodge. Personally, I think Carney deserves more credit than the sceptics wish to give him, but there is no doubt, even where central bankers are concerned, that there is much truth in the bon mot that it is better to be lucky than smart.
However, he is now lumbered with the problem that the nascent recovery in the UK, should it sustain, will most probably not be attributed to him but, were it to stall, the blame will land firmly at his door.
On the other hand, if the recovery gains momentum, then Andrew Sentance’s suggestion that the Old Lady will have to raise rates sooner rather than later will place Carney as the guinea pig when it comes to finding out what happens when the grand easing comes to an end and the rising cost of debt service begins to pull the economy in the opposite direction.
This is not an enviable position to be in and certainly not one he would have envisaged when he was hired as the great white hope of the recovery.
Mark Carney might not be David Moyes, the new man at Manchester United. But they might just choose to have dinner together one evening, compare notes on expectations and find that they are faced with many similar problems – except that the latter surely earns many times more than the former, as mad as that may be – and that they are both observed by people who believe that they know everything better and who have no qualms about vocally expressing their views. Good luck – they’ll both need it.