The British Prime Minister just selected the head of Canada’s central bank to run the 314 year-old Bank of England. What does it mean?
Mark Carney is a 47 year-old Harvard undergrad, Oxford Ph.D. (in Economics) who spent 13 years managing sovereign credit risk for Goldman Sachs before serving as a Deputy Governor, and later Governor, of the Bank of Canada, beginning in 2003. He served the Bank of Canada well, lowering rates in March of 2008—rightly judging that the leveraged sub-prime loan crisis in the US would trigger global financial contagion. Later he made a conditional commitment to keep rates low for at least a year—boosting confidence. He later raised rates, in 2010, moving back towards a more normal stance.
The Bank of Canada didn’t undertake quantitative easing, and hasn’t dramatically expanded its balance sheet. It didn’t need to. Rising oil prices have stimulated Canada’s economy far more than low interest rates. The country is the 5th largest oil producer in the world, producing 3.6 million barrels per day and exporting about a third of that. At $80 / barrel, that’s $40 billion of stimulus a year.
Carney will find the UK economy far different: 40% larger than Canada’s, far more diversified, with a much larger public sector and stubbornly slow growth. Indeed, England is just emerging from a double-dip recession. It also has a weak banking sector and several “too big to fail” institutions. Canada is notable for the lack of drama from its banking sector during the crisis.
Carney has the reputation of an insightful economist who is willing to experiment. If he succeeds in reigning in the banks and finding innovative ways to stimulate the British economy, maybe we can lend-lease him back here when Bernanke’s term is up.
Douglas R. Tengdin, CFA
Chief Investment Officer
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