"One of the results of this crisis is to imperil central bank independence, not just in the UK. This is so for three reasons: at close to zero official interest rates, the boundary between monetary and fiscal policy erodes; governments are running huge fiscal deficits, particularly in the UK and the US, which threaten monetary stability; and, finally, those in charge wish to divert blame for the disaster.
"Mr King has made four points, all critical of the government: first, contrary to the views of the Treasury, “if banks are thought too big to fail, then . . . they are too big”; second, the Bank of England has “a new statutory authority for financial stability ... [But] it is not entirely clear how the Bank will be able to discharge its new statutory responsibility if we can do no more than issue sermons or organise burials”; third, he has not been consulted on the forthcoming financial services white paper; and, last, as he told the Commons Treasury committee: “If the economy were to recover along the path assumed in the Budget projections of GDP then I think the time over which deficits need to be reduced is likely to have to be faster than was implied by [the Budget] projection.”
"Let us start with a simple question: is the governor correct on the substance? The answers are: yes, yes, yes and yes.
"True, the politicisation of the independent central bank is potentially very dangerous. The Bank’s still-limited independence may be compromised or even overturned. Moreover, at a time when co-operation among the authorities is essential, the appearance of disarray is itself damaging to confidence. Yet, against these powerful considerations, a responsible public official has to decide whether a particular issue has become so important that bringing his views into the open has become the only patriotic thing to do.
"Mr King has made four points, all critical of the government: first, contrary to the views of the Treasury, “if banks are thought too big to fail, then . . . they are too big”; second, the Bank of England has “a new statutory authority for financial stability ... [But] it is not entirely clear how the Bank will be able to discharge its new statutory responsibility if we can do no more than issue sermons or organise burials”; third, he has not been consulted on the forthcoming financial services white paper; and, last, as he told the Commons Treasury committee: “If the economy were to recover along the path assumed in the Budget projections of GDP then I think the time over which deficits need to be reduced is likely to have to be faster than was implied by [the Budget] projection.”
"Let us start with a simple question: is the governor correct on the substance? The answers are: yes, yes, yes and yes.
"True, the politicisation of the independent central bank is potentially very dangerous. The Bank’s still-limited independence may be compromised or even overturned. Moreover, at a time when co-operation among the authorities is essential, the appearance of disarray is itself damaging to confidence. Yet, against these powerful considerations, a responsible public official has to decide whether a particular issue has become so important that bringing his views into the open has become the only patriotic thing to do.
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