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Mark Carney Will Be Goldman Sachs’s Guy in London
Mark Carney Will Be Goldman Sachs‘s Guy in London
Just how does Goldman Sachs influence the policies of government? In 2011, Goldman economists suggested that additional asset purchases would help the Fed‘s easing policy. The Fed did decide to buy $85 billion in assets each month beginning in 2012 when the unemployment rate in the US was 7.8%. This policy is supposed to reduce the unemployment rate but the unemployment rate has gone up to 7.9% since the implementation.
Here is Goldman’s economist, Jan Hatzius:
“With short-term interest rates near zero and the economy still weak, we believe that the best way for Fed officials to ease policy significantly further would be to target a nominal GDP path such as the one shown in the chart on the right, indicating that they will use additional asset purchases to help bring actual nominal GDP back to trend over time. The case would strengthen further if deflation risks reappeared clearly on the radar screen.” (from Business Insider)
Mark Carney, Governor of the Bank of Canada, takes Goldman’s suggestions seriously, having been a Goldmanite himself. So why would anyone be surprised that he will be taking Goldman’s economic ideas from Canada to the Bank of England? Besides that, Carney now will have additional duties to perform such as supervising the other British banks. It is so easy to spread Goldman’s economic ideas!
Carney set for first taste of Bank of England job
The Treasury Committee is among the more powerful committees in Britain’s Parliament and it recently won the power to interview the incoming governor before he takes office. Although it doesn’t have the ability to block Mr. Carney’s appointment, the committee could make it difficult by issuing a negative report to the House of Commons and forcing a vote on whether he should be appointed.
No one is expecting that to happen, or the committee to give Mr. Carney a particularly rough ride on Thursday. “This is an opportunity for the new governor to get to know the committee,” member Andrew Love, a Labour MP, said in an interview. “It’s important for us to get to know him. And it’s an opportunity for the British public to find out more about how he sees the job as governor of the Bank of England.”
But it won’t all be easy going. Committee chairman Andrew Tyrie, a Conservative MP, has made it clear he has reservations about the recently expanded role of the governor, which now includes a supervisory role over London’s financial district along with setting monetary policy. Mr. Tyrie and other committee members have called for more oversight of the central bank, given its additional responsibilities. “We will want to hear what [Mr. Carney] has to say about making sure the bank is equal to the challenge of these new responsibilities,” Mr. Love said.
Mr. Carney will also be grilled about his decision to take the post for five years, instead of the eight requested by the British government. Mr. Carney told The Globe and Mail in November that he wanted the shorter term for family reasons and because it matches his potential tenure as head of the global watchdog known as the Financial Stability Board. Mr. Love said he and other committee members will need more of an explanation.
Merging the new responsibilities won’t be easy and it is hard to see how that can be done quickly, the MP added. “He certainly comes well qualified but there’s a major challenge and we will want to hear from him why he believes he can achieve that in five years.”
There will also be plenty of questions about Mr. Carney’s recent statements about whether central banks should scrap inflation targets during extraordinary times and move to a target that includes nominal gross domestic product, or GDP that has not been adjusted for inflation. Economists say targeting to nominal GDP growth would allow for higher inflation when the economy is slow, and lower inflation when the economy is strong. The idea is to try to smooth out the boom-and-bust cycles with an expanded approach, rather than fixating on a specific inflation number.
That kind of change would mark a major shift in policy for the Bank of England, which has followed a strict policy of targeting inflation at 2 per cent. Even the man who appointed Mr. Carney, George Osborne, the Chancellor of the Exchequer, has expressed little interest in the idea, saying inflation targeting has served Britain well. During a speech at the recent World Economic Forum in Davos, Switzerland, Mr. Carney also mused about using “unconventional measures” to kickstart an ailing economy.
Those comments have been given front-page treatment in Britain and will make up a large part of Thursday’s hearing. “We hope that he will lay out in some detail how he sees [nominal GDP targeting] developing and where he sees us moving,” Mr. Love said.
