Carney has not burst the cheap-credit bubble
Some years before I was born, my grandfather took out a mortgage on his doctor’s surgery and fixed the rate for as long as he could. Rates had come down to a bargain-basement 15 per cent and he was convinced they would never be so low again.
Well. This week the Bank of England took the revolutionary step of tweaking interest rates up from 0.5 per cent to an eye-watering 0.75 per cent, and the headlines duly screamed that they had reached the “highest level since 2009”. Mark Carney’s utterings were scrutinised like the mumblings of an oracle and sterling fell, because markets concluded that he and his colleagues have little appetite for raising rates much further. The cheap-credit sugar rush still isn’t over.
The power to decide this question was handed to economists like Mr Carney two decades ago. Central bank independence was a vote of confidence in technocracy, born in that most hubristic of times, the Nineties. The idea was that whereas politicians were far too craven ever to put up interest rates, especially before an election, central bankers would do what’s good for us, whether we like it or not.
But 20 years later, we are still living in an unbroken era of steadily descending interest rates. The havoc wreaked across the world by this credit boom is unprecedented. It has brought ballooning government debt, an army of zombie companies and households that survive only on a constant supply of cheap borrowing, and skyrocketing asset prices (the flipside of my grandfather’s wrong-way mortgage bet was the soaring value of UK property).
In the long run, this week’s rate rise is barely a blip. The truth is that central bankers are just as loath to call time on the party as politicians. And who can blame them? They have no democratic mandate to bring about an economic revolution that might get us out of our debt-fuelled mess. That can only come from winning the political argument. And that is something few politicians seem inclined to try.