Mark Carney just finished a great panel here at the World Economic Forum in Davos, Switzerland. In a wide-ranging discussion of the current state of global economy, he listed two “false assumptions” that he worries investors will have now that Europe is awash with new money from the European Central Banks’ new quantitative easing stimulus. Toward the end of the debate he listed a third worry, about how Britain might fall behind economically.
He said that when new money becomes available at zero interest rates he worried that it might trigger a period of “reckless risk-taking” by some investors. “Reckless risk-taking is built on a false assumption,” he said, and there are two main false assumptions that investors might take on:
1. The false assumption that “the central bank will always be there” to bail out institutions when they screw up. He didn’t elaborate on that, but it felt as if he was trying to communicate that investors shouldn’t assume that the BofE was just going to keep throwing money at them forever.
2. “An illusion of liquidity that has existed in a number of markets.” The extra money being pumped in can make it look as if all assets can be shifted at will when in fact some of those markets can suddenly dry up.
Toward the end of the discussion — he was on a stage with a bunch of other central bankers, including Benoît Coeuré of the European Central Bank, Haruhiko Kuroda of the Bank of Japan, Brazil finance minister Joaquim Levy and Min Zhu of the International Monetary Fund — Carney mentioned a third fear:
3. The UK is not at the frontier of tech and may be 20 years behind. The discussion had turned to the way some nations use tech and innovation to spur growth while some fall behind because they fail to adapt.”I’m a tech optimist,” Carney said, “but more fundamentally … the vast majority of the world is not at the frontier [of tech], the UK included. … even if nothing else is invented in the next 20 years, just catching up is a huge task.”
His remarks echo a theme we’ve been obsessing over at Business Insider: The fact that the US has really robust economic growth while the UK does not, and the fact that the US has much bigger job growth in the tech sector while jobs in the UK are mostly being added at the low-wage end of the spectrum. Carney apparently just told us that yes, the two things are connected.
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