QP Transcript: Mark Carney on U.K. tabloids, the 2008 recession and Canadian pride
Published Sunday, February 17, 2013 11:15AM EST
Last Updated Sunday, February 17, 2013 11:41AM EST
The exiting Bank of Canada Governor meets with CTV QP’s Kevin Newman to share his opinions and plans for the future in both England and Canada. The interview reveals his more personal side, thoughts on the 2008 economic meltdown, his view on the future of Canada’s housing market, and why he’s determined to return to Canada in five years:
Kevin Newman: I’m going to make you blush off the top. These are some of the responses to your appearance in Great Britain in front of the confirmation committee. ‘Worldly wise confidence. Sassy and relaxed style.’ And this is my personal favorite: ‘Instead of Keith Richards trashing hotel rooms, the committee was treated to a gentle Canadian crooning by Michael Buble.’ If Mark Carney were a traded stock, is it time to sell him because he’s overvalued?”
Mark Carney: I would…Michael Buble’s going to continue to grow. No, look, unfortunately I’m not a traded stock, I’m in a different line of work. It was an important appearance obviously to launch that aspect of that role and I’m pleased that it was a chance to have a real discussion.
Newman: But the expectations are enormous. You’re not only going to be dealing with their banking system, they expect you to keep them out of a third recession, grow their economy. Have there been any moments since you took the job that you thought ‘what have I taken on here?’”
Carney: Well I think the key thing is that it’s not what I’ve taken on, the expectations of the institution are very high, and obviously no one individual can accomplish any one of those tasks, let alone all of them together. And so it’s about getting the full force of that institution, the full power of that institution, focused on the right things, focused on price stability, focused on growth, repairing the financial system and helping to reform the global system and European system. So it’s really to bring all of that to the fore and I think the British officials have put in place a structure that allows that to happen.
Newman: On a personal level though, the tabloid coverage in Britain has been enormous. They’ve even talked about your wife, Diana, at one point saying nice things I guess: ‘Jolly hockey sticks English wife.’ Which I guess is a good thing about how she roles her sleeves up and other things. Did you underestimate the interest in your family’s life?
Carney: I think we have a very mature media culture here that focuses on the right things, focuses on the issues. I mean if there’s an aspect of your personal life that is relevant to the public discourse it is brought into the public discourse. I mean that’s your job, you understand it better than I do. But it doesn’t, the media here doesn’t immediately go to your private life. Your private life can be private. And I obviously prefer that, but I recognize that it’s a different environment. I wasn’t surprised that they went there. I was a little surprised on the first evening that there was already someone from London at my doorstep which showed, at a minimum, very impressive logistical capabilities.
Newman: So are you ready for it?
Carney: Ready for it, yep, absolutely.
Newman: All right. You don’t leave the job here at the Bank of Canada for another three months. But we probably won’t get a chance to talk to you in a retrospective way before you leave, so I’d like to take that opportunity. I’d like to take you back to September of 2008, that awful week when the DOW lost 18 per cent of its value and all of us were terrified. There have been movies made about how the guys at the top of the U.S. chain dealt with that week – Tim Geithner losing sleep, Hank Paulson worried about a Depression. In that week, were you ever frightened?
Carney: We were very concerned. I mean I have to say though, we were more concerned in the run-up I would say, the Minister of Finance, myself, the members of this institution. We were more concerned in the run-up to when the dam broke, if you will, because we could see all these stresses and strains in the global financial system. It wasn’t clear which way they were going to break. We had the series of deposit runs that started in places like Ireland that were potentially spreading throughout Europe and the reactions to those, the sort of action reaction. And so there was, you could feel that this was going to come to a head, it wasn’t exactly clear how. So once it happened, obviously tremendously concerning but there were issues that could be attacked and there could be a response. It took a little bit of time to organize that response but I have to say as a whole, the American officials, the G7 as a whole acted pretty rapidly and ultimately I think hindsight will show, very effectively.
Newman: Did you lose sleep over that period?
Carney: I did. I barely slept over that period. It wasn’t that I lost sleep, I didn’t go to bed until very late, I was woken up, if I did fall asleep, I was woken up at 3 a.m. consistently -- events in Europe, events in the U.K., from colleagues there and it was necessary and you know, it was part of the job.
Newman: Did you ever have a moment of fear that you might be the Bank of Canada Governor that was there when the country went back into Depression?
Carney: Not to that extreme. I, we, felt pretty strongly that we had a lot of flexibility here. We had to use it to maximum effect, we had to use it quickly, first point. Secondly, we did have this view and I would express it this way: look, Canada is the last stop before the barter economy. So all these other systems will fail before our system would fail before our system would fail.
Newman: So you had time on your side?
Carney: So we had time on our side but to maximize that opportunity required quick action. But I will say, not during that week but in the subsequent weeks and months, what did become very important was there was that forceful response across the G7, the G20, that ultimately culminated in a series of moves at the London G20 summit that helped ensure that the global economy wouldn’t fall into a depression.
Newman: Well you’ve been celebrated for being among the first of the Central Bankers to basically retain rock-bottom interest rates over a period of time to convince people to continue to borrow and banks to continue to lend and some people say that’s one of the main reasons you got the job as the Central Banker in the U.K. It worked. The thing now is nothing you or the Finance Minister or anyone says is convincing Canadians to stop going deeper in debt. I mean in some ways we’ve become a nation of debt junkies. I’ll let you face your critics on this. One of the things they say is that Mark Carney may be Canada’s Alan Greenspan. Everything was fine when he was here, as soon as he left all of that debt bubble and housing burst and he didn’t have to take responsibility for it.
Carney: Well a couple things. First I’m coming back, so I’ll be here to take responsibility if, if – well that’s not going to happen, but I’m also coming back so I’m here to face the consequences ultimately. Secondly, very importantly, Canadians are heeding the message of the Minister of Finance, of the Bank of Canada. They’re responding to the measures the Department of Finance has taken, OSFI has taken. The pace of debt accumulation in this economy has slowed from 10 per cent to about three per cent. Now we expect income to stabilize in the next couple of quarters. And what’s very important here is that we were faced in a situation where global demand collapsed. It absolutely collapsed. It was only being supported by these extraordinary fiscal and monetary measures taken in the other economies in the G20. It absolutely collapsed. So we had to build demand here in Canada. We were not in the situation of the U.S. of early 2000, where they were building demand on top of underlying strong demand. This was the option and we had to pursue it effectively. Now I think what we have done successfully – time will tell, but what we’ve done successfully is we’ve pivoted from stimulating household demand, housing market and household borrowing for consumption, kept employment up and we pivoted to focus on investment and exports. And that’s a difficult rebalancing but what we’re seeing without question is a very constructive evolution of Canadians’ attitudes towards debt and towards the housing market. And it is moving towards a much more sustainable equilibrium.
Newman: But I know from my own personal experience that the value of my house has doubled in a few years. That’s not normal, is it?
Carney: It’s certainly not normal and you certainly shouldn’t expect to continue to perform like that.
Newman: But I think what people worry about is so much of their value is that they’re house-rich. But can, as they near retirement, count on that?
Carney: Well that’s the right way to think about it is to not assume that the value of your house is going to continue to increase. Real wealth is built through innovation, and it’s gained through hard work. It’s not through some magical asset inflation. We’ve seen the adjustment of the housing market, we think there’s a bit more to come over the next couple of years but again, I think Canadians have listened to the message and they are adjusting.
Newman: Central bankers around the world, and you’ll be meeting some of them in Moscow with the G20 meeting, in the last couple of years in response to their crisis they have flooded the system with you know, ultra-cheap money in some cases. In some countries they’ve printed a lot of money. And you have said that you believe there is still room to maneuver in monetary policy to promote growth. But my question is: under what conditions does traditional monetary policy become impotent?
Carney: Well I think well the most traditional monetary policy is to adjust the short-term interest rate. And obviously it becomes impotent or you can’t move it anymore once you get down to the lowest possible level, the zero. And that’s where communication can come in to further enhance the effectiveness of the interest rate channel. But beyond that if you need more – and we were fortunate in Canada, that was all we had to do. We got down to 25 basis points and we needed more stimulus in our judgment, I think we were right about that. But all the extra we had to do was to provide that communication channel as you referenced earlier. In other economies they’ve had to do a lot more. They’ve had to quantitative ease, they’ve had to intervene directly in credit markets, they’ve had to support their banks in other ways, shapes or form. The point I made the other week is there’s a lot more they can do but that doesn’t mean they should do it. And what’s essential in all this is that monetary policy is anchored in an objective that’s given to the Central Bank. Here, it’s very clear: our objective is the two per cent inflation target. So we would only deploy flexibility that we have and we clearly have in Canada. We would only deploy it in a way that is consistent with that two per cent inflation target. And that should hold for the other major central banks around the world.
Newman: Because there is a train of thought that says monetary policy, the economies especially in Europe maybe even here in Canada that you know there’s no real economic growth or what growth there is may be out of inflation or population growth, that monetary policy may already be impotent. You don’t agree?
Carney: No I don’t agree. No I don’t agree at all. And I think what we’re seeing, you look at growth in the United States. The components of growth, private sector growth actually has been very strong productivity growth in the U.S. that supported that. Here in Canada what we’re seeing is less impressive productivity growth – some, but importantly we’re getting people back to work and we’re seeing growth through more Canadians in the labour force. Now there’s a lot more who want to work and there’s more quote “slack” in the labour market, we recognize that. And that’s, to go back to monetary policy, one of the reasons why monetary policy is as accommodative as it is here in Canada.
Newman: OK, I’m going to ask you a couple of personal questions. Not too personal, but you know, Mark Carney we hardly knew you. You were Bank of Canada Governor and now you’re going. So you were born in Fort Smith, Northwest Territories. Your dad was a school teacher. You moved to Edmonton. You and your two brothers all went to Harvard.
Carney: My elder brother went to Harvard, my younger brother went to Notre Dame.
Newman: What is the source of your ambition? What about a kid who grew up close to the Arctic Circle, I’m sure you’ve exceeded your own expectations in life. But what is the source of your ambition?
Carney: Finishing high school exceeded my expectations. And then it’s one thing after another. So look, I think I had parents who both highly value…both my parents were teachers, big value around education in the household and that’s what drove me forward. And I was very fortunate obviously to go to Harvard and then it opens up a world that you might not have seen otherwise, and continued from there. But look, I mean the value behind that is the values of the North. I mean, it’s determination. You got to have determination if you’re growing up anywhere across this country at some points. I mean we’re in February, in the depths of February, and (there’s) a sense of optimism that things can get done. You see that in places like Smith, in places like Edmonton, you see it here in Ottawa. So it’s that sort of general sense of possibility and obviously if you’re fortunate, and I was very fortunate with my family and educational opportunities. You combine that with an education and things happen. And you can’t map out….
Newman: If you’re curious?
Carney: If you’re curious. Definitely curious and a desire to take on new challenges. But it’s not all mapped out. There’s no way at any point up until very recently, even a year ago that I thought well I’m on a path to become, for example the Governor of the Bank of England.
Newman: No, a career only makes sense in hindsight.
Carney: In retrospect, yes. Exactly.
Newman: You’ve said in this interview and you’ve said several times that you’re coming back in five years. Why is it important for you to say that to yourself?
Carney: Why is it important to me? It’s not important to me. People ask me whether or not we’re coming back. I mean it’s important. I think the question is why is it important to come back or why does that seem natural. I just answered the question, I mean, I’m Canadian, and most comfortable in this country. This is where my friends are, this is obviously where my family is. And it’s just a natural. There’s a big challenge that I’ve been offered. Very much looking forward to it, it will be a great experience for our family as well. But in the end, I’m Canadian and I’ll come back and bother you.
Newman: Oh good. Well you’re the kind of guy that, you know, when you can take a limo you’ll walk. You drink beer out of a bottle, I’ve seen that. You hose down rinks, I’ve seen that too. (Carney: I don’t drink beer and hose at the same time) Yeah, they go together. But you’re about to go to something called the Old Lady of Threadneedle Street. So what about the world you’re entering do you worry will change you?
Carney: I don’t think, no, I’m probably too far in life to be changed. The value of me going there to the institution is to bring a different perspective. To be a bit of an outsider, to help with the reform the rebounding of the Bank of England. To think with the colleagues at the bank and more broadly, in the U.K. and Europe, about policy options to really get those economies going and fix those financial systems. So I don’t want to change. I don’t think I will change. But also I would be unsuccessful if I tried to be something that I’m not because I’m there because I’m Canadian, because I’ve had the experiences that I’ve had and to bring a different perspective.
Newman: Well we wish you all good luck. I have one final question for you. We’ve talked about monetary policy, we’ve talked about you as a person, but for most Canadians the Bank of Canada Governor was someone whose signature just showed up on bills. These polymer bills, you’re going to be remembered for these in Canada. Will they always stick together like they do when they’re new?
Carney: They, if you go like this with them [gestures] they uh, yeah they come apart. The whole point of them is they come apart, they last longer, they’re cleaner and greener, good value for taxpayers and better for the environment.
Newman: So can Britain look forward to a polymer pound?
Carney: The Bank of England is exploring a variety of options for their next currency yes.