44. Mark Carney: Bank of England, Trussonomics, and Brexit
Nov 6, 2023
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Mark Carney, former Governor of the Bank of England, discusses financial markets' role in fighting climate change, the true economic theory behind austerity, and the challenges he faced during his tenure. They also touch on investment bankers, the aftermath of the 2008 financial crisis, and Mark Carney's potential career in politics.
The role of a central bank includes maintaining confidence in money, safeguarding the financial system, and aligning financial markets with societal objectives.
The 2008 financial crisis led to a decline in investment and affected the productivity of the UK economy, highlighting the importance of a strong financial system.
Austerity measures after the financial crisis were necessary but could have been more balanced in their distribution of cuts and reduction in public spending.
Deep dives
Mark Carney's background and early life
Mark Carney, a former investment banker and governor of the Bank of England, discusses his childhood and upbringing in Canada. He shares that his parents were teachers and held idealistic views on public service. Growing up in a small town in the Northwest Territories of Canada, Carney eventually moved to Edmonton and attended school there. He also highlights the unique climate of his hometown, with cold winters and long summer days.
The role and responsibilities of a central bank governor
Carney explains the role of a central bank, using the Bank of England as an example. He emphasizes the importance of maintaining confidence in money, ensuring its value, and safeguarding the financial system. He also mentions the role of a central bank in managing and overseeing payments throughout the economy. Carney points out the need for independence and accountability in central banking, highlighting the Bank of England's robust accountability mechanisms and the importance of aligning financial markets with societal objectives.
The 2008 financial crisis and its impact on the UK
Carney discusses the causes and consequences of the 2008 financial crisis, highlighting the fragility of the financial system due to the proliferation of complex market instruments. He acknowledges the shock to the UK economy and the subsequent challenges in terms of productivity and growth. Carney also mentions the impact of Brexit on the UK economy, explaining that the country has yet to recover from the shock and emphasizing the importance of trade relationships and a consensus on objectives to drive economic growth.
The importance of the financial system during the 2008 crisis
After the 2008 financial crisis, the UK's financial system was in a precarious state, requiring support from the government and the Bank of England. Liquidity support, in the form of quantitative easing, was injected into the system to ensure its functioning. However, the crisis severely impacted the willingness of banks to lend, causing a collapse in bank money. This lack of lending led to a decline in investment and affected the productivity of the UK economy. The UK's productivity performance post-crisis has been adversely impacted by the weakened financial system and the subsequent lack of business investment.
Assessing the impact of austerity and Brexit
During his time as Governor of the Bank of England, Mark Carney encountered two significant challenges: austerity and Brexit. Carney believes that austerity measures were necessary after the financial crisis to consolidate the fiscal situation. However, he acknowledges that the distribution of cuts and reduction in public spending could have been more balanced. Regarding Brexit, Carney and the Bank of England prepared for the worst-case scenario, a hard Brexit, which would have had severe implications for the financial system. Carney emphasizes the importance of economic and geopolitical security, as well as addressing the impact on households, when formulating policies to tackle climate change.
Can financial markets help fight climate change? What's the true economic theory behind austerity? What does the Bank of England actually do?
Tune in to today's episode of Leading, where Mark Carney joins Rory and Alastair to answer all these questions and more.
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