The Bank of England these days is very worried about the world economy. Mark Carney, its governor, and other members of his entourage are constantly sounding off about the fragile state of things (as though they had the answers!). The latest one is Minouche Shafik, the deputy governor, who is frightened that there’ll be runs on governments in much the same way that there used to be runs on banks in pre-First World War times (or, more recently — horror of horrors! — when we actually had a run on our great Northern Rock Bank in 2007 — the Bank of England had totally screwed up by not anticipating it — will we ever live it down?).
Minouche Shafik reckons that the world’s monetary system needs a safety net, so she told some learned financial people at Edinburgh yesterday. The powers of financial institutions such as the International Monetary Fund must be “beefed up”. Really? How do we do that? And by how much? Its biggest contributor, America, is refusing to pay its dues and China, the only advanced country in the world with a positive balance sheet, has been black-balled from membership in the past few years.
According to the Financial Stability Board composed of international financial regulators (chaired by Mark Carney), businesses in the West are in debt to the tune of $45 trillion, and businesses in the Third world to the tune of $22 trillion which — excluding ordinary private debts such as yours and mine — adds up to the approximate $70 trillion lopsided-ness of total world trade. What a total mess that has accumulated since we started printing money in 1917 to pay for the First World War!
Sit it through, dear Shaffik and Carney — not to mention dear Janet Yellen of the US central bank. Be patient. Stay with your 0% central bank rates (you can do little else anyway) and sit it out while the above firms go bankrupt one by one. And, as they do so, the world’s financial system will correct itself little bit by little bit. The world’s economy won’t stop. Profitable firms will keep it going.
And, at the same time, the values of the world’s nationalistic currencies will adjust little bit by little bit. And, if you don’t print any more money (apart from replacing used banknotes), nationalistic currencies as a whole will gain value. You don’t really need to back them up with anything if you don’t want to — so long as you stop printing the stuff. Well, you’ve been good boys and girls for a few years now. Keep it up. The therapy will be hard going, but nowhere near as hard as the next catastrophe if you keep on interfering with the real world by printing money, thinking you know how to steer things when you really haven’t the faintest idea.