In other ages, we have called on shamans or saints in times of crisis when the usual remedies don’t work. In today’s stagnant world economy, we have designated central bankers as our super heroes and rely on their magical monetary powers to restart global growth.
As European Central Bank president Mario Draghi (nickname: Super Mario), wryly noted earlier this month: “There was a time, not too long ago, when central banking was considered to be a rather boring and unexciting occupation.”
Not any more. And no one embodies this new high profile better than Mark Carney, the 48-year-old governor of the Bank of Canada, who has been tapped to lead the Bank of England, becoming the first foreign governor in its 319-year-history.
The bar for Mr. Carney could not be higher. A cartoon in the British papers made the point, depicting a Bethlehem inn with Joseph leading Mary on a donkey and a caption above the inn keeper’s head declaring: “Unless you’re Mark Carney, you’ll have to make do with the stable.”
Mr. Carney’s star power was reflected in the packed house that turned out Thursday at the National Press Club in Washington for a Thomson Reuters “newsmaker” interview.
He deftly dodged questions about the British economy, saying it wasn’t his job to comment on the U.K. yet. And he pointed out that fiscal policy – the domain of elected authorities – and the private sector are the true engines of economic lift-off.
“If we want to talk about ultimate sources of growth, sustainable fiscal policy is a necessary condition,” Mr. Carney said. “Sustainable growth comes from the private sector, not from the [International Monetary Fund], Bank of Canada or anyone else.”
He also took care to delineate the proper lines of authority between the central bank and the ministry of finance, and steadfastly declined repeated invitations to overstep them. “Central bankers take fiscal policy as given,” he said. “Treasuries take monetary policy as given. That’s the separation and I’m not going to wade in positively, negatively, neutrally.”
Within those constraints, though, he offered a cautiously optimistic view of the world economy. “The important development in our opinion from the course of last 12 months or so, is that the quality of private-sector growth in the United States has picked up,” he said. “The U.S. is moving toward that class of advanced economies that has well-functioning financial systems, private credit is growing now and … there is reasonably solvent investment growth.”
That’s good news for Canada, as he said, and also good news for the rest of the world.
He believes that a key element in restoring sustainable global growth is finishing the job of repairing global finance and the regulatory framework in which it operates. As the head of the Financial Stability Board, set up by the Group of 20 in the aftermath of the financial crisis, Mr. Carney is one of the leaders in that effort.
A major focus is repairing the gap that was revealed in the emergency response to 2008 – the existence of “too big to fail” banks, whose owners and executives pocket profits in the good times but get a state bailout when things go awry.
Over the next few days in Washington, during IMF-World Bank spring meetings, Mr. Carney and other central bankers and finance ministers will continue to hammer out a way to let banks, including global ones, die without having taxpayers foot the bill.
The recent crisis in Cyprus gave a messy preview of how that sort of resolution might work. Mr. Carney hopes global guidelines will make future resolutions cleaner and more predictable. Part of that game plan, he believes, should include the “bail-ins” seen in Cyprus. “Bail-in broadly speaking. Not bail-in as it was performed a couple of weeks ago in Cyprus, but bail-in as a component of addressing systemic risk is an absolutely necessary element; it doesn’t solve everything but it’s absolutely necessary.”
One of the analytical mistakes made before the financial crisis was to believe that efficient markets were perfect and that private bankers could police themselves. Refreshingly, Mr. Carney isn’t making the same error in reverse. He is a believer in regulation and has embraced it at its most complex, global, scale.
But he said regulators need to be watchful of the unintended consequences of their rules and mindful of the feedback loops between their actions and private markets. The relationship between markets and governments is a complicated process that requires eternal vigilance and constant tweaks.