Mervyn King (economist)
Encyclopedia
An ex-officio member of the Bank's interest-rate setting Monetary Policy Committee
since its inception in 1997, Sir Mervyn is the only person to have taken part in every one of its monthly meetings to date. His voting style is often seen as "hawkish", a perspective that emphasises the dangers of inflation rather than focusing on the need for growth. Before becoming Governor, he regularly voted for tighter monetary policy
than his colleagues. That pattern has continued in a more muted way as Governor: most notably, he was outvoted opposing the MPC's August 2005 interest rate cut, and in June 2007 was in the minority by voting for higher rates. King's willingness on occasion to take a minority position is unusual among central bank
leaders.
In 2003, King expressed his agreement with Alan Greenspan
's view that, "It is hard to identify asset price 'bubbles'." His agreement with Greenspan—whom King has referred to as a "great man" who had "an extraordinarily successful quarter century" as Fed Chairman—had came despite a bubble in the US housing market being pointed out as early as August 2002, and an IMF warning about a bubble in the UK housing market in February 2003. Other warnings about the UK housing market were to follow, including from the National Institute of Economic and Social Research in 2004 and the OECD
in 2005. King himself noted the "unusually large" difference between the RPIX
and CPI
at the beginning of 2004 (the latter does not include house prices as part of its inflation measure, whilst the former does), and, six months later, that UK house prices had risen "to levels which are well above what most people would regard as sustainable in the longer term", their having increased by more than 20% over the preceding year and more than 100% over the preceding five. In 2005, The Economist
described the run-up in UK house prices as forming part of "the biggest bubble in history", and, by October 2007—when the UK housing bubble was at its peak—the IMF was reporting that the UK housing market was "overpriced by up to 40 per cent". As noted by the OECD, house-price volatility "can raise systemic risks as the banking and mortgage sectors are vulnerable to fluctuations in house prices due to their exposure to the housing market."
Sir Mervyn argued that Bank of England policy in the years preceding 2004 had "been similar to that of the Federal Reserve"; Fed policy was described by Greenspan as "mitigat[ing] the fallout [from the bursting of a bubble] when it occurs". The failure by Greenspan and King to tackle the bubbles in their respective countries' housing markets resulted in catastrophic "fallout" when the bubbles burst, resulting in the worst recessions in both countries since the Great Depression
.
King had faced accusations of refusing funding to the Northern Rock Bank, precipitating a run on that bank, a situation not seen in the UK since 1914. King later revealed that it had been the Chancellor, Alistair Darling, not he, who had the final word on refusing the necessary help to Northern Rock.
In his memoirs, Alistair Darling was critical of King for emphasising "moral hazard"—the doctrine of not saving the banks from the consequences of their own mistakes—instead of rescuing the banks by pumping money into them as the banking-system meltdown occurred in autumn 2008. Despite his refusal to give funding to the retail banks, he retained his job, and submitted in defence to a Treasury Select Committee, (The New York Times, The Financial Times Thursday September 20th 2007) that his actions were on the basis that The Bank of England was the 'lender of last resort
' but then subsequently supported all moves to provide funding to those banks which had been nationalised at a cost of hundreds of billions of pounds to the UK treasury and British taxpayer. The apparent U-Turn is underlined by his earlier criticisms of The European Central Bank and The US Federal Reserve for their interventionist policies.
There followed an erosion in the value of sterling against major world currencies, such as the Euro and the US dollar, by as much as 30%.
King took an unusual decision on 24 March 2009, by saying any plan for a second fiscal stimulus by the UK Government had to be done with caution. He is also the first incumbent Governor of the Bank of England to be received in audience by Queen Elizabeth II.
In his Mansion House speech on 17 June, 2009, and contrary to his previous position regarding the Bank's remit as regulator, King criticised Chancellor Alistair Darling for resisting significant changes to the allocation of regulatory responsibilities between the FSA, the Treasury and the Bank, which would have given the Bank greater power to fulfil its role of ensuring economic stability.
King has consistently supported drastic cuts in public spending, and has been criticised for publicly airing such support. In November 2009, he told MPs that the then Labour government's intention of halving the deficit over the next five years was insufficient; in April 2010, just before that year's general election, he predicted that the cuts he viewed as necessary would be so severe, and thus so unpopular, that party which won the election—and which would therefore be responsible for instituting the cuts—would "be out of power for a generation"; and in May 2010, just days after the Coalition government was formed, King said he had spoken to Chancellor George Osborne and supported his plans to cut spending by a further £6bn within the 2010–11 fiscal year. The Liberal Democrats did not need to be talked around to agreeing to the severity of the cuts.
In November 2010, it was revealed that some senior staff at the Bank of England were uncomfortable with King's endorsement of the government's public spending cuts, accusing him of overstepping the boundary between monetary and fiscal policy. King's support for the government's cuts are in spite of concerns within the Bank that cutting spending so rapidly could derail the UK's nascent economic-recovery. These revelations led to accusations of King being a "coalition courtier" and of making "excessively political" interventions with regard to UK economic policy.
The accusations were given greater weight after the December 2010 WikiLeaks Cablegate
. As a result of the WikiLeaks disclosures and David Laws'
account of the Tory-Lib-Dem coalition-talks, King was asked by the Political and Constitutional Reform Select Committee
to explain why he was seemingly cited in the talks as backing Tory plans to introduce spending cuts this year. King insisted to the Committee that he had committed no breach of his obligations to remain silent during the actual period of the negotiated formation of the coalition; the Committee implicitly accepted King's explanation of events as he is not criticised, nor even mentioned, in their final report.
In an interview with The Daily Telegraph
on March 5th 2011, King said that Banks had "put profits before people", that failure to reform the sector could result in another financial crisis, and that traditional manufacturing industries have a more "moral" way of operating.
In a speech to the European Parliament in Brussels on the 2nd of May 2011, King implicitly admitted that the Bank of England had abandoned its remit on inflation and was more concerned with the broader stability of the economy and banking sector: "The economic consequences of high-level indebtedness now would become more severe if rates were to rise," Mr King said. "It is the main reason why interest rates are so low."
interior designer and comes from the Swedish-speaking minority in Finland. They were married in a private ceremony in a central Helsinki
church in 2007.
Sir Mervyn is a fan of Aston Villa F.C.
, and arranged a game between Bank of England employees and ex-Villa players. He also briefly found himself commentating on an Ashes
Test Match for BBC
Radio Five Live in 2005, while being interviewed by Simon Mayo
. He is the President
of the cricket foundation Chance to Shine
programme, which fosters competitive cricket
in State schools. He is also a member of the AELTC
and MCC
.
Cambridge University
honoured him as an Honorary
Doctor of Laws (Hon LLD) in 2006. Sir Mervyn is also a Visiting Fellow
of Nuffield College, Oxford
.
Sir Mervyn is listed as the eleventh most influential person in the Financial Centres International top 500 most influential people in financial centres.
He was appointed Knight Grand Cross of the Order of the British Empire (GBE) in the 2011 Birthday Honours
., and his banner
is to be displayed with those of other GBEs in St Paul's Cathedral
.
Monetary Policy Committee
The Monetary Policy Committee is a committee of the Bank of England, which meets for two and a half days every month to decide the official interest rate in the United Kingdom . It is also responsible for directing other aspects of the government's monetary policy framework, such as quantitative...
since its inception in 1997, Sir Mervyn is the only person to have taken part in every one of its monthly meetings to date. His voting style is often seen as "hawkish", a perspective that emphasises the dangers of inflation rather than focusing on the need for growth. Before becoming Governor, he regularly voted for tighter monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
than his colleagues. That pattern has continued in a more muted way as Governor: most notably, he was outvoted opposing the MPC's August 2005 interest rate cut, and in June 2007 was in the minority by voting for higher rates. King's willingness on occasion to take a minority position is unusual among central bank
Central bank
A central bank, reserve bank, or monetary authority is a public institution that usually issues the currency, regulates the money supply, and controls the interest rates in a country. Central banks often also oversee the commercial banking system of their respective countries...
leaders.
In 2003, King expressed his agreement with Alan Greenspan
Alan Greenspan
Alan Greenspan is an American economist who served as Chairman of the Federal Reserve of the United States from 1987 to 2006. He currently works as a private advisor and provides consulting for firms through his company, Greenspan Associates LLC...
's view that, "It is hard to identify asset price 'bubbles'." His agreement with Greenspan—whom King has referred to as a "great man" who had "an extraordinarily successful quarter century" as Fed Chairman—had came despite a bubble in the US housing market being pointed out as early as August 2002, and an IMF warning about a bubble in the UK housing market in February 2003. Other warnings about the UK housing market were to follow, including from the National Institute of Economic and Social Research in 2004 and the OECD
Organisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade...
in 2005. King himself noted the "unusually large" difference between the RPIX
RPIX
RPIX is a measure of inflation in the United Kingdom, equivalent to the all items Retail Price Index excluding mortgage interest payments.-History:It was the UK's target rate of inflation from October 1992 to December 2003...
and CPI
CPI
A consumer price index is a measure of the average price of consumer goods and services purchased by householdsCPI may also stand for:*Central Port Injection, see fuel injection...
at the beginning of 2004 (the latter does not include house prices as part of its inflation measure, whilst the former does), and, six months later, that UK house prices had risen "to levels which are well above what most people would regard as sustainable in the longer term", their having increased by more than 20% over the preceding year and more than 100% over the preceding five. In 2005, The Economist
The Economist
The Economist is an English-language weekly news and international affairs publication owned by The Economist Newspaper Ltd. and edited in offices in the City of Westminster, London, England. Continuous publication began under founder James Wilson in September 1843...
described the run-up in UK house prices as forming part of "the biggest bubble in history", and, by October 2007—when the UK housing bubble was at its peak—the IMF was reporting that the UK housing market was "overpriced by up to 40 per cent". As noted by the OECD, house-price volatility "can raise systemic risks as the banking and mortgage sectors are vulnerable to fluctuations in house prices due to their exposure to the housing market."
Sir Mervyn argued that Bank of England policy in the years preceding 2004 had "been similar to that of the Federal Reserve"; Fed policy was described by Greenspan as "mitigat[ing] the fallout [from the bursting of a bubble] when it occurs". The failure by Greenspan and King to tackle the bubbles in their respective countries' housing markets resulted in catastrophic "fallout" when the bubbles burst, resulting in the worst recessions in both countries since the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...
.
King had faced accusations of refusing funding to the Northern Rock Bank, precipitating a run on that bank, a situation not seen in the UK since 1914. King later revealed that it had been the Chancellor, Alistair Darling, not he, who had the final word on refusing the necessary help to Northern Rock.
In his memoirs, Alistair Darling was critical of King for emphasising "moral hazard"—the doctrine of not saving the banks from the consequences of their own mistakes—instead of rescuing the banks by pumping money into them as the banking-system meltdown occurred in autumn 2008. Despite his refusal to give funding to the retail banks, he retained his job, and submitted in defence to a Treasury Select Committee, (The New York Times, The Financial Times Thursday September 20th 2007) that his actions were on the basis that The Bank of England was the 'lender of last resort
Lender of last resort
A lender of last resort is an institution willing to extend credit when no one else will. The term refers especially to a reserve financial institution, most often the central bank of a country, intended to avoid bankruptcy of banks or other institutions deemed systemically important or 'too big to...
' but then subsequently supported all moves to provide funding to those banks which had been nationalised at a cost of hundreds of billions of pounds to the UK treasury and British taxpayer. The apparent U-Turn is underlined by his earlier criticisms of The European Central Bank and The US Federal Reserve for their interventionist policies.
There followed an erosion in the value of sterling against major world currencies, such as the Euro and the US dollar, by as much as 30%.
King took an unusual decision on 24 March 2009, by saying any plan for a second fiscal stimulus by the UK Government had to be done with caution. He is also the first incumbent Governor of the Bank of England to be received in audience by Queen Elizabeth II.
In his Mansion House speech on 17 June, 2009, and contrary to his previous position regarding the Bank's remit as regulator, King criticised Chancellor Alistair Darling for resisting significant changes to the allocation of regulatory responsibilities between the FSA, the Treasury and the Bank, which would have given the Bank greater power to fulfil its role of ensuring economic stability.
King has consistently supported drastic cuts in public spending, and has been criticised for publicly airing such support. In November 2009, he told MPs that the then Labour government's intention of halving the deficit over the next five years was insufficient; in April 2010, just before that year's general election, he predicted that the cuts he viewed as necessary would be so severe, and thus so unpopular, that party which won the election—and which would therefore be responsible for instituting the cuts—would "be out of power for a generation"; and in May 2010, just days after the Coalition government was formed, King said he had spoken to Chancellor George Osborne and supported his plans to cut spending by a further £6bn within the 2010–11 fiscal year. The Liberal Democrats did not need to be talked around to agreeing to the severity of the cuts.
In November 2010, it was revealed that some senior staff at the Bank of England were uncomfortable with King's endorsement of the government's public spending cuts, accusing him of overstepping the boundary between monetary and fiscal policy. King's support for the government's cuts are in spite of concerns within the Bank that cutting spending so rapidly could derail the UK's nascent economic-recovery. These revelations led to accusations of King being a "coalition courtier" and of making "excessively political" interventions with regard to UK economic policy.
The accusations were given greater weight after the December 2010 WikiLeaks Cablegate
United States diplomatic cables leak
The United States diplomatic cables leak, widely known as Cablegate, began in February 2010 when WikiLeaks—a non-profit organization that publishes submissions from anonymous whistleblowers—began releasing classified cables that had been sent to the U.S. State Department by 274 of its consulates,...
. As a result of the WikiLeaks disclosures and David Laws'
David Laws
David Anthony Laws is a British politician. He is Liberal Democrat Member of Parliament for Yeovil and former Chief Secretary to the Treasury....
account of the Tory-Lib-Dem coalition-talks, King was asked by the Political and Constitutional Reform Select Committee
Political and Constitutional Reform Select Committee
The Political and Constitutional Reform Select Committee is a select committee of the House of Commons in the Parliament of the United Kingdom. It was created on 7 June 2010.-Remit:...
to explain why he was seemingly cited in the talks as backing Tory plans to introduce spending cuts this year. King insisted to the Committee that he had committed no breach of his obligations to remain silent during the actual period of the negotiated formation of the coalition; the Committee implicitly accepted King's explanation of events as he is not criticised, nor even mentioned, in their final report.
In an interview with The Daily Telegraph
The Daily Telegraph
The Daily Telegraph is a daily morning broadsheet newspaper distributed throughout the United Kingdom and internationally. The newspaper was founded by Arthur B...
on March 5th 2011, King said that Banks had "put profits before people", that failure to reform the sector could result in another financial crisis, and that traditional manufacturing industries have a more "moral" way of operating.
In a speech to the European Parliament in Brussels on the 2nd of May 2011, King implicitly admitted that the Bank of England had abandoned its remit on inflation and was more concerned with the broader stability of the economy and banking sector: "The economic consequences of high-level indebtedness now would become more severe if rates were to rise," Mr King said. "It is the main reason why interest rates are so low."
Private life
Sir Mervyn's wife, Barbara Melander, is a FinnishFinland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...
interior designer and comes from the Swedish-speaking minority in Finland. They were married in a private ceremony in a central Helsinki
Helsinki
Helsinki is the capital and largest city in Finland. It is in the region of Uusimaa, located in southern Finland, on the shore of the Gulf of Finland, an arm of the Baltic Sea. The population of the city of Helsinki is , making it by far the most populous municipality in Finland. Helsinki is...
church in 2007.
Sir Mervyn is a fan of Aston Villa F.C.
Aston Villa F.C.
Aston Villa Football Club is an English professional association football club based in Witton, Birmingham. The club was founded in 1874 and have played at their current home ground, Villa Park, since 1897. Aston Villa were founder members of The Football League in 1888. They were also founder...
, and arranged a game between Bank of England employees and ex-Villa players. He also briefly found himself commentating on an Ashes
2005 Ashes series
The 2005 Ashes series was that year's edition of the long-standing and storied cricket rivalry between England and Australia. Starting on 21 July 2005, England and Australia played five Tests, with the Ashes held by Australia as the most recent victors...
Test Match for BBC
BBC
The British Broadcasting Corporation is a British public service broadcaster. Its headquarters is at Broadcasting House in the City of Westminster, London. It is the largest broadcaster in the world, with about 23,000 staff...
Radio Five Live in 2005, while being interviewed by Simon Mayo
Simon Mayo
Simon Mayo is an English radio presenter who has worked for BBC Radio since 1981. As of January 2010, Mayo is presenter of Simon Mayo Drivetime on BBC Radio 2 and, with Mark Kermode, presenter of Kermode and Mayo's Film Reviews on BBC Radio 5 Live.In 2008, Mayo was recognised as the "radio...
. He is the President
President
A president is a leader of an organization, company, trade union, university, or country.Etymologically, a president is one who presides, who sits in leadership...
of the cricket foundation Chance to Shine
Chance to Shine
Chance to Shine is a 10-year programme run by the charitable Cricket Foundation to encourage competitive cricket in state schools in the UK.Devised and implemented by former cricketer Nick Gandon, it launched with pilot programmes launched in March 2005 - immediately before the 2005 Ashes series -...
programme, which fosters competitive cricket
Cricket
Cricket is a bat-and-ball game played between two teams of 11 players on an oval-shaped field, at the centre of which is a rectangular 22-yard long pitch. One team bats, trying to score as many runs as possible while the other team bowls and fields, trying to dismiss the batsmen and thus limit the...
in State schools. He is also a member of the AELTC
All England Lawn Tennis and Croquet Club
The All England Lawn Tennis and Croquet Club , also known as the All-England Club, based at Aorangi Park, Wimbledon, London, England, is a private members club. It is best known as the venue for the Wimbledon Championships, the only Grand Slam tennis event still held on grass...
and MCC
Marylebone Cricket Club
Marylebone Cricket Club is a cricket club in London founded in 1787. Its influence and longevity now witness it as a private members' club dedicated to the development of cricket. It owns, and is based at, Lord's Cricket Ground in St John's Wood, London NW8. MCC was formerly the governing body of...
.
Cambridge University
University of Cambridge
The University of Cambridge is a public research university located in Cambridge, United Kingdom. It is the second-oldest university in both the United Kingdom and the English-speaking world , and the seventh-oldest globally...
honoured him as an Honorary
Honorary degree
An honorary degree or a degree honoris causa is an academic degree for which a university has waived the usual requirements, such as matriculation, residence, study, and the passing of examinations...
Doctor of Laws (Hon LLD) in 2006. Sir Mervyn is also a Visiting Fellow
Fellow
A fellow in the broadest sense is someone who is an equal or a comrade. The term fellow is also used to describe a person, particularly by those in the upper social classes. It is most often used in an academic context: a fellow is often part of an elite group of learned people who are awarded...
of Nuffield College, Oxford
Nuffield College, Oxford
Nuffield College is one of the constituent colleges of the University of Oxford in England. It is an all-graduate college and primarily a research establishment, specialising in the social sciences, particularly economics, politics and sociology. It is a research centre in the social sciences...
.
Sir Mervyn is listed as the eleventh most influential person in the Financial Centres International top 500 most influential people in financial centres.
He was appointed Knight Grand Cross of the Order of the British Empire (GBE) in the 2011 Birthday Honours
2011 Birthday Honours
The Birthday Honours 2011 for the Commonwealth Realms were announced on 7 June 2011 in New Zealand and 11 June 2011 in United Kingdom to celebrate the Queen's Birthday of 2011.-Privy Councillors:...
., and his banner
Banner
A banner is a flag or other piece of cloth bearing a symbol, logo, slogan or other message. Banner-making is an ancient craft.The word derives from late Latin bandum, a cloth out of which a flag is made...
is to be displayed with those of other GBEs in St Paul's Cathedral
St Paul's Cathedral
St Paul's Cathedral, London, is a Church of England cathedral and seat of the Bishop of London. Its dedication to Paul the Apostle dates back to the original church on this site, founded in AD 604. St Paul's sits at the top of Ludgate Hill, the highest point in the City of London, and is the mother...
.