Zak Mir on Mark “Clooney” Carney and The Bank of England: Let The Schadenfreude Begin

You have to admit that I have been consistent as far as the current Bank of England Governor, Mark Carney, has been concerned. I was not happy with the appointment from day one. This was partly on the basis of his relocation expenses, partly on the basis that employing a Canadian implied that out of 60 million Brits no one was up to the job, and of course the (alleged) George Clooney type good looks.

What Carney should have done is what most older and less matinee idol style BoE Governors would have done when faced with the vista of a booming housing market: kicked off with a pre-emptive interest rate rise. This could have been accompanied by the warning that the end of the party in property was nigh. This is what I would have done and have said so on many occasions subsequently.

Clooney/Carney

Instead, we have seen a housing bubble backed by such momentum that it seems to be almost unstoppable. Even if it is eventually curtailed, just like the QE policy for the economy as a whole, the end will almost certainly be delivered via a crash.

But how did we get here? Watching one of the many Thatcher biographies which have been issued over the past year I was reminded of the great housing bubble of the 1980s. This came in the wake of the Conservative government’s Right To Buy initiative. On the face of it this was a blatant attempt to buy votes from (usually) non Tory voters in council houses – all well and good. But as Ken Livingstone reminded us, the big sin was not to replace these properties and hence create an acute housing shortage. This is a state of affairs which lasts to this day, helped along by the Help To Buy policy which allows the parents of already rich kids to buy houses in the Home Counties.

Ironically, it could be argued that it was the generous attitude to immigration by the Brown / Blair governments (in order to import new Labour voters), which has made matters even worse.

All of this has culminated in the “Unreliable Boyfriend” tag for Mark Carney as he quite understandably dithers on interest rates. The BoE is boxed into a corner in terms of policy as higher rates and stronger Sterling would start snuffing out economic growth, and rates as they are would take the housing bubble to crisis levels. Just to add to the excitement, next summer’s General Election draws ever closer and either house prices or the economy going down could flip Mr Milliband into power, with UKIP having divided the right wing vote.

So it is not surprising that Carney backtracked on the interest rate forward guidance just a couple of weeks back and has now gone into dither mode. He reminds me of clients I had when I was a broker in the 1990s. They would place a stop loss, but then move it as soon as the price came near.

Carney has already done this on the employment rate with the “good until near” promise, and will no doubt choose all manner of irrelevant measures and statistics such as wages, growth, or probably global warming to wriggle out of raising rates. To be fair, much of the blame in house prices stems from hot (all tax paid of course) money from abroad which simply buys real estate with cash. But I would not want to help the Bank of England get out of the hole it is currently in. It is all far too entertaining.

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