15 Sep 2010

King tells TUC: ‘We let it slip’

The government ministers facing the terrifying job of selling their cuts to the country should get a tape of Mervyn King’s foray in to the lions’ den today.

There was a mini-walkout, a stand up protest, and a few dozen union delegates holding ‘no to ConDem cuts‘ signs. But its worth noting that the dissent was far less than I saw meted out to Tony Blair over his part privatisation plans a few years back.

The Governor came bearing two rhetorical gifts. A spot of contrition, and some banker-bashing.

In saying “we let it slip”, he pinned blame for the crisis on bankers and policymakers, and, by extension, the Labour government. It is the closest to a mea culpa I have ever heard this proud self-confident academic. 

Even the word ‘bank’ seemed to send some union delegates into an eye-bulging tizzy. It is a shame, because on bank reform they have been surprised to hear just how much common cause Mervyn King has with the band of union brothers.

Yes, he was playing to a lightly hostile gallery at the TUC in Manchester. However at one point he vaguely seemed to incite further bank-bashing by saying that he understood the strength of feeling on bankers bonuses, and he was surprised that it had not been expressed more deeply.

Remember this. When things start to get testy, and middle Britain realises its libraries and care homes are being shut, then expect the Coalition to move quite quickly to blaming bankers again. In Ireland, at the very moment that austerity ceased to be theoretical and actually started to bite, effigies of Ireland’s bankers began to be burnt.

I don’t think that Mervyn King changed many minds here at the TUC.  He also hinted at a long term strategy of low interest rates to accomodate the economic of spending cuts.

6 reader comments

  1. Charles Jurcich says:

    No one has picked up yet that the TUC argument about spending our way out of recession is backed by the United Nations no less. In their ‘Trade and Development Report, 2010′(published yesterday), The UN Conference on Trade and Development (UNCSTAD) are strongly recommending that both developed and developing nations focus on fiscal expansion to promote demand and job creation.

    “The global upturn from what is considered the worst economic and financial crisis since the 1930s remains fragile, and a premature exit from demand-stimulating macroeconomic policies aimed at fiscal consolidation could stall the recovery. A continuation of the expansionary fiscal stance is necessary to prevent a deflationary spiral and a further worsening of the employment situation.”

    The TUC have not been making the most of this.

  2. Ray Turner says:

    Once again, no mention of the impact all this is having on savers. We’ve endured Merv’s record low base rate for 18 months now. He seems to foreget that there’s two sides to the financial world, borrowing AND investing and they need to be in balance. At the moment, the investing side is crippled. The wider economy simply isn’t going to function properly again, whilst that situation continues.

  3. helen says:

    Now that Mr King has at last admitted the liability of the banks in creating the finacial mess will he now outline plans to make the banks pay for all the damage they have caused. If they are required to compensate the country for the unimaginable sums of money that apparently just vanished, then the levels of spending cuts and job losses to those who certainly did not cause the problem could be reduced accordingly. It is only just that those who caused the problem should be the ones to suffer its effect, rather than those who have least.

  4. Andrew Dundas says:

    Isn’t it curious that Merve-the-Swerve chose the TUC Conference to announce that “we slipped up”?(‘we’ being the financial community incl the FSA?). Moreover, he added that we had in our grasp the opportunity to continue Britain’s low-inflation & high employment growth.
    When Alan Greenspan – then Chairman of the US Federal Reserve admitted, in 2009, his much more damaging errors – “I never thought that sophisticated Wall St bankers would be so reckless…” – it was to the US Senate Committee. How was it that our Parliamentary Committee was so dumb that they couldn’t get such a clear confession?
    Merve also offered the view that what mattered was not the detail and timetable of a deficit reduction plan, but the need to have any clearly credible plan. He did NOT endorse the government’s plan for drastic cuts, nor its urgent timetable.
    So there we have it! Merve-the-Swerve could well side with TUs on the need to protect lower paid workers and public services. And on the need to ensure BANKERS suffer proportionate loss.

  5. Andy Jones says:

    Perhaps the most revealing part of Mervyn King’s speech is that he barely mentioned what is supposed to be the Bank of England’s day job,controlling inflation.
    According to notayesmanseconomics blog the Governor says at one point “keep inflation on track to meet our target.” But then as notayesmanseconomics points out
    “I was not aware that it was on track and am even more unclear as to how being more than 1% over target in each month this year leaves us on track. He appears to have temporarily forgotten the letters he has had to write to the Chancellor of the Exchequer to explain the divergence”
    Perhaps the Governor wishes not to remind us of his problems in this area.

  6. Charles Jurcich says:

    Andy Jones,
    The clue to this is in Faisal’s last sentence:

    “He also hinted at a long term strategy of low interest rates to accomodate the economic of spending cuts.”

    I would suggest that even Mervyn King knows that if he withdraws anymore ‘aggregate demand’ from the economy (by raising the interest rate) on top of the proposed cuts, then the economy will sink back into recession very quickly. When this happens we will get deflation and he will be forced to put the interest rate back down again.

    This is the methodology behind raising the interest rate – that it strips demand (spending power) from the economy in order to control inflation.

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