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Former Bank of England Governor Mervyn King takes a seat with Jim Grant as the legendary financial writer brings the biggest names to Real Vision, with the candor to elicit the insights that you won’t see anywhere else. Mervyn King, Baron King of Lothbury, navigated the financial crisis during his decade at the helm of the UK central bank. Now he reflects on the absurdity of market models and widespread blindness as to what created the financial crisis, which impedes both the recovery and efforts to prevent another crisis in the future.
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Central Banks Aren’t The Only Game In Town (w/ Mervyn King) | Jim Grant | Real Vision™
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Transcript:
So I think one of the problems is that central banks have been taken in a little by this idea that central banks are the only game in town, and that the only thing that matters in trying to ensure that there's a recovery of the world economy is that interest rates are low enough until we get back to normal growth, at which point interest rates can rise. And what people have forgotten is that there can be serious misallocation of resources brought about very often by the wrong signals that are given as a result of intervening into the pattern of not just interest rates, but exchange rates, which result in resources being devoted to sectors of the economy that in the end can't support any more investment.
And so the loans which are taken out can't be repaid. And whereas I think from 2008-- the end of 2008 to maybe the end of 2009-- people could argue that there was a need for some sort of collective, global stimulus, that argument started to become much less relevant once we got into 2010. And the need to look at the underlying disequilibrium in our economies became paramount, and that sort of problem cannot be dealt with by central banks distorting the pattern of interest rates.
And the idea that a market economy can survive in a healthy way with long-term interest rates being at zero is impossible to sustain in my view.
