Money, Banking and the Future of the Global Economy, by Mervyn King. Review by John Plender
Mervyn King, former governor of the Bank of England.
During the pre-crisis period that economists called “the Great Stability” or “the Great Moderation”, output rose at rates close to historical averages.
While this looked sustainable to most central bankers, who congratulated themselves on the stability engendered by their inflation-targeting regime, the composition of demand was problematic.
A “savings glut” emerged in Asia, while debt rose rapidly in the developed world.
Savings and investment in several large countries were out of kilter.
During the pre-crisis period that economists called “the Great Stability” or “the Great Moderation”, output rose at rates close to historical averages.
While this looked sustainable to most central bankers, who congratulated themselves on the stability engendered by their inflation-targeting regime, the composition of demand was problematic.
A “savings glut” emerged in Asia, while debt rose rapidly in the developed world.
Savings and investment in several large countries were out of kilter.
Interest rates today, he says, are too high to permit rapid growth of demand in the short run but too low to be consistent with a proper balance between spending and saving in the long run.
The disequilibrium persists, as does a misallocation of capital to unproductive investments.
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