Photo: World Economic Forum
Albert Edwards is “not happy,” he tells clients in his latest note.The bearish Société Générale strategist’s mood has been soured in part by incoming Bank of England Governor Mark Carney’s testimony before the British Treasury Committee yesterday, which Edwards says was a “classic example of Central Bank ‘bull’.”
The episode confirmed his view that the most dangerous thing out there right now is central bankers’ overconfidence in their own abilities to support economies and avoid unwanted inflation.
The SocGen strategist even goes so far as to compare Carney to Alan Greenspan, saying the former Federal Reserve Chairman’s “post-crash accolade – ‘probably one of the most ruinous central bankers ever’ – may even be up for grabs.”
Below is Edwards’ take on Carney’s testimony yesterday (emphases his):
And while we are on the theme of mission creep, the incoming Bank of England Governor Mark Carney has given the clear impression from his statements over recent weeks that he does not agree with Mervyn King’s comments that QE is reaching the limits of effectiveness. Carney is willing to be much more aggressive – at least George Osborne will be pleased. In his evidence on Thursday to the Treasury select committee he repeated his idea that if existing QE measures fell short, central banks should consider shifting to targeting nominal gross domestic product, which would allow them to respond much more aggressively to a downturn in economic output and place as much weight on supporting growth as reining in inflation.
Now personally I have no great ideological attachment to inflation targeting as opposed to any other method to control inflation, but I note with alarm the tendency of policymakers to become more and more interventionist in their monetary experiments. It may be that central bankers will keep control of the tiger they are riding, but history suggests that central bank intervention may make things worse in the long run rather than better. Marc Faber’s comment that he is so bearish that he sometimes wants to throw himself out of the window really resonates with me when I see what the central bankers are doing.
In 2005 I described Alan Greenspan as an economic war criminal when most others had decided he was “the greatest central banker who ever lived”, Hence I note with alarm that some commentators are so excited about the appointment of Mark Carney to the Bank of England Governorship that now he Carney, is now being dubbed “the world’s greatest central banker”. Oh dear! From everything I have read so far I fear that in the fullness of time he will have more similarities with Alan Greenspan than just this unwanted accolade and his legacy will be equally destructive.
Edwards goes on to compare Carney to Rudolf von Havenstein – the central banker that presided over Weimar Germany’s post-war hyperinflation – writing, “Let’s see if we can see any of the Rudolf in Mark Carney’s reflection?”
He cites a piece written by former colleague Dylan Grice, who after examining Havenstein’s story concluded in his own note, “The fact is we do understand the economics of inflation…and we know that once you’re on that path it can be extremely difficult to get off it.”
“I wish Mark Carney, the new Bank of England Governor the very best of luck,” Edwards writes, “and if, as I suspect, monetary mission creep accelerates under his governorship, he will need all the luck in the world.”