What the new Bank of England boss means for your money

You’ve no doubt heard.

On Monday, chancellor George Osborne named Mark Carney, governor of the Bank Of Canada, to be Mervyn King’s successor as governor of the Bank of England (BoE).

You might feel that with a package worth £624,000 a year – more than twice as much as Sir Mervyn, and a 50% rise on Carney’s current deal – he’s a little overpaid. You might feel it’s rather hypocritical to appoint a non-national to a position like this, as well as detrimental to national confidence. You might feel that an appointment as significant as this should be subject to some kind of electoral process.

You might, like me, be a little baffled as to why Osborne is making this appointment when the BoE is supposed to be independent. (If you can enlighten me, please do. I’m sure there’s good reason).

But what you or I may or may not feel is irrelevant. There’s not a lot either of us can do.  “You should only worry about what you can affect,” runs the sporting psychology.  We can adjust our portfolios accordingly to protect ourselves and, possibly, benefit.

So what effect – if any – will Carney have on your investments?

Another Goldman Sachs alumnus takes over a Western central bank

The BBC and others described Carney’s appointment as a “surprise choice”. But ZeroHedge was saying as far back as the summer, even after Carney had ruled himself out, that his appointment was “very likely”. It’s yet another example, if you need one, of why more and more people are shunning the mainstream in favour of the alternative for their news.

The appointment is in a tradition trailblazed by the FA, who appointed Sven Goran Eriksson, and, later, Fabio Capello, as England’s football manager, feeling that no Englishman was up to the job, despite the fact that the English Premier League is the most watched and most lucrative in the world.

London is the capital of global finance, yet again, no Briton is up to the job. Why? I don’t know. ZeroHedge suggested back in July, rather terrifyingly: “There is one problem regarding the domestic candidates: none of them have Goldman Sachs on their resume”.

Now, I’m not about to get into Goldman-Sachs-rules-the-world theories. It’s one of the world’s top investment banks, so it’s inevitable that it will attract top talent, and that this talent will go on to feature in the higher echelons of finance.

But it can’t be denied that Goldman Sachs alumni are amazingly well represented in highly powerful, well-paid, unelected public positions across the West. From Treasury Secretary Tim Geithner and New York Fed president Bill Dudley in the US, to European Central Bank president Mario Draghi and ‘stop-gap’ Italian prime minister Mario Monti in Europe.

Many pundits are excited that the BoE job has gone to ‘an outsider’. And better yet, one who has been running one of the few global economies that seems to have emerged from the financial crisis virtually unscathed.

But what impact will Carney have on your money? My belief is that, just as nothing much changed under Eriksson and Capello, nor will it under Carney. Why do I say this?

There is the signal the markets have given us for one. Sterling was pretty much flat on the day of his appointment, while the FTSE 100 was down about 30 points, in line with other stock markets. There was no “this-is-going-to-save-us!” rally, nor “this-is-the-end!” falls.

And digging a bit deeper, there is also Carney’s record. Carney, we are told, helped to “protect Canada from the worst effects global economic crisis.” (Try telling that to investors in the Canada’s TSX Venture Exchange. It’s currently sitting about 65% off its 2008 highs. Not that it’s the job of the governor of the Bank of Canada to protect Venture exchange speculators, of course.)

But how did Carney actually work this miracle? Well, he added liquidity to the system, and slashed interest rates. In other words, exactly the same as every other central banker.

Carney didn’t save Canada – in fact he may ruin it

The truth is, there are three good reasons why Canada was not hit so hard in 2008, and was among the first countries to recover. First, it’s the only one of the G7 countries to have run a budget surplus for the last 14 years. (One reason for which, incidentally, is that with the US next door, it spends very little on its armed forces). So it was in a stronger position going into the crisis.

Secondly, Canada is extremely rich in natural resources – oil, gas, metal and grain, the prices of which (except gas) recovered very quickly after 2008.

Third, Canada’s banks were not so geared. Part of the reason for this may lie with Canada’s more risk-averse regulatory system, which Carney oversaw during his time at the Bank of Canada. Others would argue that Canada’s banks were simply too late to the securitisation party, and so were able to dodge a bullet.

Of those three reasons, Carney can only really take any credit for the last. Yet as a result of his slashed interest rates, the banking system may not be such a paragon for much longer. Carney leaves behind him high house prices in both Toronto and Vancouver, where, not unlike London, locals complain that housing has become unaffordable to them. Are they bubbles that are set to burst? We’ll see. Carney might be leaving Canada just in time. We shall find out.

So are we going to see real change? I doubt it. Just a few tweaks here and there are more likely, I would have thought – not unlike the change you see after general elections, really, or with the England football team.

Carney only has the same cards as the last head of the BoE – words and the ability, if in doubt, to print as much money as the Treasury wants. So no need to change your investment strategy. There’s no big change of policy coming. We’re likely to remain mired in this stagflationary bog. Stick with income-paying stocks, cheap markets outside the UK, and, of course, plenty of gold to guard against the ongoing devaluation of sterling.

• This article is taken from the free investment email Money Morning. Sign up to Money Morning here .

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  • Alan

    I agree, mainstream media (especially the BBC) are very keen to avoid the Goldman Sachs link.

    Then, let’s play the race card – Cameron and Osborne play a big game on immigration right now, to the point where many decent companies are jumping through hoops to bring in the right people, but this guy will just get fast-tracked through immigration.

    Do as we say, not as we do.

  • Michael

    We are fond of scouring the world for management talent and often wind up with North American heroes running our financial institutions. However, recent experiences with Barclays and Lloyds, for example, have not been wonderful. Shareholders virtually wiped out in the case of the latter and badly damaged in the former. For all our sakes let’s hope the B of E fares better.

  • Nick

    That was excellent, very well written, on the ball article.

  • SH

    Glad someone else noted the BBC’s (alongside others) complete omission of the Goldman’s background. Thought it seemed odd. Completely agree on the MSM and good to see ZH getting a nod. Was a remarkably accurate prediction.

    Good stuff Dominic.

  • Aff

    The mainstream media projects a phoney reality which is drip fed into a sleepwalking public. Might sound a bit cliche but once you open your eyes the seducing, lying melodies of the mainstream media become very easy to spot.

    This is an excellent article from a worthy source of truth that is moneyweek

  • astaire

    ”…Canada’s more risk-averse regulatory system which Carney oversaw…” Doesn’t sound a bad place to start to me!

  • bingo

    Let’s not get all paranoid, chaps, eh? In the BBC article I read it says he “spent 13 years with the investment bank Goldman Sachs”. And Stephanie Flanders in her broadcast report says he “worked for Goldman Sachs the US investment bank that prides itself on its goodc onnections.”

  • cookie

    Yep its happened again trying to claim the BOE is independent when its clearly is not .Who appoints the policy committee who is beholdent for there job who has laid down the rules of governance etc etc all peeing in the same pot and making a mess. Only when government stop interfering if ever will markets ever function properly and restore wealth

  • FrostyA1

    Get a Life, Please! If Fat Eddy & Myopic Merv had been paid what they`re truly worth they`d be sleeping rough on the streets by now.
    Their complete negativity & doom-laden prophesies to every aspect of British financial achievement & aspirations sought to wither any progress or recovery made by this Country & our very naughty `City` by their crucifying halitosis .
    The last thing we need within the `Old Lady`s` underwear is another pessimistic, no-hoper Mansion House `Lunch-Goblin`.
    Give Carney a chance, he has all the credentials of Hope, Faith, Astuteness, & Vigour, he couldnt do worse than his two useless `timed-out` predecessors in buggering this Nation sideways..F.

  • Stitcher

    Canada went into the world recession in good shape. However, only in good shape because Canada had its own debt problem in the mid 1980’s for which it spent the 1990’s sorting out – hence the more recent 14 years of budget surpluses that you referred to.

    I see Carney’s appointment as one to assist Osborne, in that Carney, as an outsider, can criticise those politicians who mismanaged our economy and point out the trouble that the UK is in. It should also help Osborne to get the message across that more sacrifices, in the area of benefits, have to be made.

    In my opinion, Mervyn King should have been more critical of Gordon Brown, particularly over the stimulus he created on the back of a ficticious inflation rate, which was purely to increase government revenues from VAT etc. Of course, once the stimulus benefits came to an end government revenues dropped, but the vote catching benefits from Brown, that we can no longer afford, still endure.

  • Critic Al Rick

    Governorment of the Bank of England by the Bilderbergers primarily for the Bilderbergers.

    No real change! The’re all in it together.

    Honour amongst thieves.

    Meanwhile, ‘Rome’ continues to burn.

  • nickos

    The race differentiation is quite hypocritical! we all know that canadian or english is like Greek or Cypriot! The only difference is that for some reason 1 country is split into 2… nothing more nothing less!
    Other than that! history will tell!
    But i don’t believe that he will go against some people ;p

  • flyfly

    When did Geithner work for Goldman Sachs? Pretty sure he is a career technocrat. You’re a Treasury Secretary behind.

  • Mike

    Spot on Article.

    Carney is the catalyst for the great upheaval that will hit Canada in the next recession. It is so clear that Canada is a bubble, I wonder why so many don’t see it!

    160% odd consumer debt. More than the Americans were before the financial crisis. House prices out of control. 90% odd of all cars are financed. Insane.

    And Carney has resorted to telling/scolding Canadians to save more.

    He is leaving Canada now because he knows Canada is headed for disaster. He will arrive in the UK, and quite honestly, in the next 5 years, UK will get out of the recession on its own steam. This twit isn’t going to help much.

    And then he will be credited for “saving the UK”. Rubbish.

    Remember Hank Paulson? He is ex-Goldman. He and Greenspan are the architects of the US downfall! And so is Carney for the Canada.

  • Tony

    @Mike – the UK will not get out of recession at it’s own steam, largely because they will not be allowed to rob other countries of it’s resources. See Libya as the last adventure of the Pirates, because it may well end in Syria for you guys.

    The uk is ready for revolution, to get rid of the queen and those who taught people to be content with the proceeds of crime, being the proceeds from other countries that the UK procured fraudulently.

  • Steve

    Although I agree with your message, the tone of your aticle is very negative and smearing and many truths have been bent to support your arguments.

    Why do you think Canada spends “very little” on its armed forces?? According to the 2012 UN Security concil, they spent $25bn vs. $63bn US spent by the UK, but have roughly half the population we do. Military spending per person is comparable to Italy, Germany, higher than South Korea and 7.5x that of China. As well house prices have been extraordinarily high in Toronto and Vancouver long before Carney appeared on the scene. Remember, they have other urban areas though not experiencing urban price bubbles.