Legacy Set to Haunt

It was on the 22nd May 2013 that we penned a piece on Sir Mervyn King, GBE, FBA, the current Governor of the Bank of England and Chairman of the Monetary Policy Committee, entitled “A Job Not Well Done.

Usually, with this or any other topic discussed wouldn’t be re-visited for at least a few months, but it seems fitting to have a further comment on Mervyn as today marks his final working day in the job plus the aforementioned date of May 22nd has so far marked the start of a trend change for stocks, commodities and perhaps of most importance, bonds.

First up, let us look at the Bank of England’s balance sheet under Mervyn’s stewardship.


It is not a pretty sight.

Whereas our earlier article demonstrated the failure by the Bank in its core objectives of monetary and financial stability (stable prices, confidence in the currency and of reducing threats to the financial system as a whole,) a quick peek at the chart above speaks loudly of the legacy left by the governor and his merry band.

Under King, the Bank of England’s balance sheet has quadrupled as a result of quantitative easing and other stimulatory programmes which were designed to boost lending, the largest increase than any other central bank over this period. Such has been the pace of increased borrowing by the bank that its debt is now equivalent to 25.8% of GDP, according to a recent Bloomberg commentary.

Furthermore, as set out within the earlier commentary, this enormous addition of tax-payer liability has failed to stimulate either lending or a decent pick-up in economic growth, in fact it’s been quite the opposite.


The myth that central banks control interest rates is once again being exposed for what it is, a myth. As the world frets on “will he, wont he taper QE,” in respect of the Fed’s Bernanke, the market has decided that it requires a higher level of compensation for the risk of lending to government or via them, to their central banks.

The legacy left by Mervyn King is already starting to haunt any UK householder with a mortgage, as the variable rate mortgage is tied to the 10-year sovereign debt yield and, as can be seen within the second chart, yields are on the rise.

The interest rate cycle for the UK turned a year ago and is set to go far higher yet and in a lot quicker time-frame than most folk anticipate.

So thank you Sir Mervyn and congratulations on the life peerage awarded to you last week. You were nominated by the UK Prime Minister, David Cameron, for, “significant public service,” whilst presiding over the largest debt bubble in history during your 10 years at the helm of the bank.

Adding to the accolades was UK Chancellor, George (you can call me Jeffrey) Osborne, who said that you had “helped to lead our country through an extraordinary period of its economic history” going on to say, “I can think of few people who have done more to shape our public discourse in the last 30 years.”

Quite ironic that in a week when lawmakers are suggesting “jail-timefor “reckless bankers,” the facilitator of the debt is honoured.

Enjoy your legacy as few others will.


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