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If, as many Canadian observers believe the Bank of Canada has bench strength and can come up with a competent, acceptable replacement for Mark Carney in-house, then more power to the Bank of Canada. It is large complement to believe that an organization the good can be replaced with the great.

I was stunned that the UK would let a foreigner (yeah, yeah, he's not British) run the Bank of England, it is one of the most powerful policy positions in any government. This has to say something decidedly unflattering about the Bank of England, though few UK papers have gotten that deep into it. The Times was backing The Other Guy, and ran an editorial in today's paper supporting him. Oops.

Apparently Carney has a reputation as a "Good Manager" who is a competent office administrator and easy to work with, which isn't common in the wonkish world of central banks.


you are in good company. Apparently the most people, including me and the bookies, thought the new name is Tucker ("Bookies decide BoE race is over")


His "perfect CV" had just one stain: his involvement in the Libor scandal,
deep, in the eyes of many on the continent.

A posterboy for the bending of financial supervision.

In contrast: "Carney will provide the “strong leadership the bank needs as it takes on the role of handling financial supervision” in the UK, according to George Osborne."
(no paywall)

One frequent commenter, with knowledge about the mayor of Toronto, is less positive.

An earlier statement, that he would keep some involvement in Canada was disappeared overnight.


It is interesting that the Brits would appoint a foreigner (albeit an Oxford educated Canadian - and I believe I saw something about Carney obtaining British citizenship) to be the Governor of the BoE. I have a hard time imagining us appointing a Brit as Governor of the BoC or the Americans appointing a foreigner as head of the Federal Reserve, which, frankly, probably says something about us. If the Brits don't feel bound by crude nationalism and are willing to recruit based on talent, more power to them (I believe that, in the past, they've had Americans and Australians occupying relatively senior posts in the BoE, so maybe this doesn't come as a surprise).

I don't know much about the Canadian economy, but could it be that the performance post-crisis was better not because of Carney, but just by sheer luck (no housing bubble, for example, if that is the case). Any thoughts on that?

"I don't know much about the Canadian economy, but could it be that the performance post-crisis was better not because of Carney, but just by sheer luck (no housing bubble, for example, if that is the case)."

I think it's fair to suggest that Canada's performance probably wouldn't have been much different had Nick Rowe (or pick your person) been Governor of the Bank of Canada, rather than Mark Carney. That isn't a knock on Carney, who I think performed his role well, so much as a comment on relative pre-recession strength of Canada's economic institutions.

I wouldn't chalk that up (entirely) to luck, mind you. The relative strength of Canada's economic and financial institutions reflect, to a certain degree, conscious policies that Canada has adopted (or not adopted), notably relating to the regulation of financial institutions, fiscal policy (where Canada has, over the last 20 years, been notably less profligate than the US or Europe), and monetary policy (Jim Crowe's battle with inflation in the late 80s/early 90s). Of course, it doesn't hurt to be sitting on treasure trove of natural resources during a resource boom.

Bob Smith: profigacy? Spain is not in trouble because of profligacy but because a balance of payment problem that should have solved by devaluation.
As for Carney, he could have bought the Trichet Kool-Aid. He didn't. We were lucky we had a boom in resources at the right time. CArney ( and Flaherty ) could have been as wrong as the Euuro-bunch of lunatics...

Many links to other commentaries on Carney's move here:


Re: the Bank of England picking a "foreigner", Felix Salmon asks a good question: how come the US would never consider a foreigner (like, say, Mark Carney!) to run the Fed? If you want the best person for the job, why not cast your net as widely as possible?



what percentage of Canadian houses sit empty? What is the percentage of employed in construction? How much severance pay does a Canadian get at layoff?

Some here believe that Spain has much more severe problems than its foreign debt.

Matias: I agree that there is far too much "cult of personality" in the media around this story. If you have a rules-based system, which Canada does for monetary policy, it matters much less which particular person implements those rules. But there's a bit of a distinction between monetary policy in the narrow sense, which is very rules-based in the Bank of Canada's inflation targeting framework, and the role of the central bank in acting as lender of last resort etc, which nobody has managed to create rules for. No transparency, it's back to Bagehot and human judgment behind closed doors. IIRC Carney was more personally involved in fixing the (relatively) smallish but tricky Asset Backed Commercial Paper problem, so probably deserves some credit there.

As for the rest, it is hard to distinguish good luck from good governance and supervision of financial intermediaries. And that does not come directly under the Bank of Canada anyway. Though bank failures have been very rare in Canadian history, which suggests it probably wasn't all luck, even if it had little to do with Mark Carney.

I would suggest a couple of motives for this appointment. One is that it is intended to confound internal clientelism at the BoE, which wastes staff energy and makes the BoE less receptive to external views, including those of HMT of course. Second, unlike many academics or private sector bankers, Mark Carney has the combination of monetary policy and financial stablility policy that is going to be required when the BoE takes on a larger role in financial stability in the near future, and without the baggage of involvement in the LIBOR scandal carried by the main internal candidate (Paul Tucker). Regrettably, I doubt whether what I see as the BoE's biggest failure - persistently above-target inflation - had much of a bearing on the government's choice! Personally, I am proud that the UK is open to considering, and reportedly make considerable effort to recruit, a foreigner (OK, maybe not that foreign!) to run a key national institution.

Bob Smith: profigacy? Spain is not in trouble because of profligacy but because a balance of payment problem that should have solved by devaluation.

And had I said "Spain" that might be a fair point - though since I said "Europe", I'm not sure what your point is. There is no doubt that the problems faced by countries like France, Italy and Greece are a function of their profligate over-spending (Spain had a relatively low debt level, pre-recession, but to a large extent that reflected the (in retrospect, illusory) boom-related tax revenues and growth of the mid-2000s. Spain's apparent fiscal rectitude was a function of its bubble economy). But, in any event, I didn't cite over-spending as the sole cause of Europe's troubles - I'd freely admit that much of Europe is such a collection of basketcases, that over-spending is only one of the (many) problems it faces.

Interesting, because my impression is that your knowledge of economic history (remembering all those economists and their names and their arguments) is far more voluminous than many/most economists that I read.

Canada also benefited from having a strong bank regulator, the OSFI, run by Julie Dickson which has avoided regulatory capture. Further, most importantly IMO the Big Five banks all appoint their CEO's from within, in fact they were all branch managers at one time and are steeped the the risk-averse culture of retail banking. Know your client, know your client's balance sheet and income, pay attention to default risk and keep to historic rules that work, it isn't OSFI that makes this culture the reality, it is the banks themselves who never forgot that they are banks.

I'd also say that given the narrow field of banks in Canada, bank shareholders (bank stocks figure in every portfolio and pension fund in Canada) want consistent, reliable returns and steady dividends. There is no shareholder pressure to turn a bank into a casino, shareholders are happy with their boring cash cows.

Bob : Italy had a primary surplus and the "public debt" problem is merely the reflexion that the state is used instead of the banking system and that public debt is used instead of bank deposits..
Ireland had a real estate bubble followed by a foolish decision to take over the debts of the bank instead of liquidating.

Greece is an inconsequential bit, the size of the city of Paris.

Importance of Carney ? Rules are made by people, obeyed or not by people and people must have the good judgment of knowing when to obey and when to understand that salus populi suprema lex esto.
Carney had that good judgment that Trichet didn't.

Here is what Andrew Coyne had to say about Carney's performance: "That our banking system was not so badly mauled by the crisis as others had, of course, less to do with Carney or any current officeholder than with the historical and policy inheritance they came into: if any single person deserves credit it’s probably Mike Wilson, author of the sweeping financial regulatory reforms carried out under the Mulroney government in the 1980s." So maybe luck did play a role. Link here http://www.montrealgazette.com/business/Farewell+Canada+rock+star+banker/7612661/story.html

Andrew Coyne is the son of James Coyne, the second Bank of Canada Governor who was forced out by the Diefenbaker Government in the Coyne Affair in 1962.

I wouldn't call him a neutral or unbiased commentator on central banking.

On importing a central bank chairman: 99% of all national governments would restrict their choice to their own citizens. The responsibility of government is the responsibility of the citizenry, most countries see it as entirely appropriate that a citizen is responsible for directing national policy.

Central Bank independence is and should be a tenuous thing; when Parliament sets policy, the Central Bank has to fall in line. That's how it works in Canada with the inflation-targeting agreement between Finance and the BoC. That agreement could change and therefore the Bank's mandate would change. That is a political decision and it is entirely appropriate that it be a political decision.

Matias: I would agree with Andrew Coyne. I wouldn't really call that "luck' though. Lucky for Mark Carney, yes. But not really luck in the big scheme of things, but rather reasonably good policy/practice that predates Mark Carney.

In defence of "luck" though, I remember Don Drummond (from TD bank) saying something like: "Well, if one of our competitors had started offering really dodgy loans, would we at TD have done the same, just to keep up with the competition?", and shrugging his shoulders.

Whether luck of good financial supervision, we won't always be this lucky/good financial supervisors. Sh*t happens. We need a more resilient monetary framework that keeps most of the economy rolling along even when banks do all do something really stupid, or when a meteorite hits the housing stock. NGDPLPT, or something. It doesn't make sense to have a system where lots of workers take a "holiday" just because some banks go belly-up.

Steve: thanks, but having taken a half course in history of economic thought, I'm the one-eyed man in the valley of the blind. And someone like Brad DeLong (who IIRC had a tossup between doing econ or history?) can run rings around me, leaving me feeling like a slack-jawed yokel. (Bloody city kids piss me off!)

CBC interviewed Don Drummond today who stopped short of saying "I've emailed my resume to Mr Harper" but gave strong signals that he would be interested in having the job. I think there's a bit of media buzz around Don Drummond because he has had good relations with the media for years. Also he has private sector experience, which might be considered an asset.

I was gossipping in the photocopy room with one of my undergrad students yesterday, and he mentioned Tiff Macklem as being smart and generally a good guy. I don't really know Tiff Macklem, but over the years I must have had dozens of people tell me in one context or another something along the lines of he's smart and he's a good guy.

Someone like Craig Alexander (chief economist at TD)? I wouldn't think so.

But I really don't know any of the candidates or players involved.

Nick: not only DeLong ( who saw the salary of economist as compared to historians ) but Krugman too, by the way of science-fiction...

I met Tiff Macklem in grad school during my MA year. He's smart and a good guy. Very personable and diplomatic.
"My guess is that almost all journalists are very good at networking, and that most economists are bad at networking"
Actually, I think economists are good at networking with other economists. They seem to run into difficulties in broader social groupings.

To tie-together the themes of economists networking and the history of economics, here's a fascinating issue of the AER from 1927, with discussions about issues like the economics of prohibition and interest from Irving Fisher, Wesley C. Mitchell, Frank Fetter, Frank H. Knight, and Max O. Lorenz (of the Lorenz curve) all at the same dinner party!

Hi Rebel(Economist),

long time no see. I remember you bringing in the guardian link 9/29/2008 here on the nationalist surprise attack of the Government of Ireland on FDIC schemes in Europe (full 200% GDP coverage of Irish banks by the People of Ireland, infuriating the rest of Europe).
You tick off the 2 important points, the constant failure of the MPC to relate to stated inflation targets and the uniformly LIBOR tainted English personal at the BoffE.

You are right that ultimately majorities settle issues. But the qualified majorities required , time delays to stuff the courts or the central bank are a very powerful deterrent to the whims of a majority du jour. FDR didn’t succeed with that, and here that would be the third rail.

I looked up the global severance pay packages. https://openknowledge.worldbank.org/bitstream/handle/10986/2369/655470PUB0EPI2065712B09780821388495.pdf?sequence=1

It looks like that Canada, as an Anglophone country, is pretty stingy. Even after “horrible social destruction” Spain is like 2x Germany and 4x Canada. But of course, Canadians are tough guys, who can handle that : -)

When you used 15% of your workforce to overbuilt McMansions, still overvalued by at least 50%, enough (15% empty) for the next 5 years, as in Spain, you don’t have just a “Balance of Payment” problem.
And to offload the McMansion size mortage of a Spanish speculator, politically connected, on a poor central European renter, who didn’t speculate, seems to me pretty criminal.

Severance Pay in Canada is a provincial matter, the minimum is stated in the provincial Employment Standards Acts. In Ontario the legal minimum is an rising scale that would give you six months severance pay for five years of service and no severance pay for zero to three months service. In Ontario an employer can terminate you whenever they want, they just have to pay you severance pay. They don't owe you severance pay if they terminate you for cause, that is for things like stealing company funds.

Various contract-worker arrangements are common, much as I deplore them as at best wage repression and at worst an attempt at tax fraud.

The gimmick is that a contract worker (often white-collar) will incorporate themselves and deduct business expenses. The employer/contractor owes no income tax or other payroll deductions. If the worker has no other source of income other than the employer/contractor, this amounts to a tax fraud and the CRA can, has and will declare the person to be an employee and the employer to owe income taxes that should have been withheld.

I once interviewed at a large, well-known manufacturer where they were plainly running this scam and advised me to participate if I was hired. The Globe & Mail had an article six months later detailing how it was a tax scam and a sham arrangement.

Nick, how demanding do you think managing the Bank of Canada is these days? Relative to, say, that of Sweden or Denmark or another-wealthy-country-that's-not-on-the-Euro-and-is-not-in-the-G5? or relative to any other Canadian decade since WWII?

It's been a long time since Canadian monetary has been really controversial (compared to, say, the great slump of the early 90s or the Coyne affair under Diefenbaker or the decision to float the dollar in 1970.) Markets look more stable after the turbulence of 2008/09. The performance of the monetary policy targeting regime looks acceptable and the execution looks competent.

I'm not saying that a sudden collapse of the housing market, IF it happened, wouldn't be a demanding test of the governor's skill, but I'm wondering whether you'd agree that the environment that the new governor will inherit looks like it will be relatively benign? If not, I'd be curious to know what you think the biggest decisions facing the new governor are likely to be.

One more question: can you see the next governor moving to a NGDP target?

I would just like to record that I found something on which I agree with Livio ... Tiff Macklem is a very bright and diplomatic guy.


The next Governor can't change the target on his own, he's bound by the Memorandum of Agreement with the Department of Finance to target 1-3% price inflation over the medium term.

If the Bank Governor wants to change the target, he'd have to convince the Finance mandarins and the Minister that it was a good idea.

Simon: good point. The 2% inflation target makes being governor of the BoC less demanding than it was in the past. Much less demanding than, say, early 1980's. I think Canada would be about the same as Sweden, Australia, New Zealand, etc.

My guess is that the UK would have a bigger probability than Canada of formally moving to an NGDP target in the near future. We are far too complacent here. "It ain't broke don't fix it". Nobody seems to get the point that IT failed to prevent a recession. The BoC kept inflation (roughly) on target, but we still had a recession. NGDP fell below trend, but inflation didn't. It's broke. It failed. It didn't fail as badly as in some other countries, but it did fail.

Biggest challenge facing the next Governor of the BoC? Dunno.

I still think preparing for and reacting to Eurogeddon. Euroland is into recession, again, and I think it will get worse. But the UK would be worse affected than Canada.

We ought to be trying to make the lender of last resort function as transparent and rule-based as inflation targeting. But I don't see that happening.

We ought to be preparing to switch to NGDP targeting. But I don't see that happening either.

What do you see as the biggest challenge?

Biggest challenge? Hmmm.....

Well, there's always reacting to the unexpected (housing market collapse? global financial crisis? new government takes power with amazingly stupid econmic policy?) but barring that...

I don't see the challenges changing much from those that confronted David Dodge. Crow established the inflation targetting framework. Theissen downsized the operation significantly. Dodge....what did he do again? Carney dealt with the crisis (and perhaps more things internal to the bank.)

I predict that they keep holding research conferences on the choice between targetting price levels and targetting inflation (or perhaps NGDP.)

@ Determinant

Thanks for your information that the real severance definitions are provincial. These “global comparisons” from OECD, IMF, Worldbank (here) are so often so badly researched. And the Canadian level, according to your description, is pretty close to what I originally expected. We had this pseudo self employed 15 years ago here around as well, but this got fixed by laws.

With the size of these packages, you have to look at it from both sides, mass layoffs happen especially during bad times, in certain industries, making it very difficult for people to find new jobs. On the other hand, if the size is too large, that kills companies, which have to downsize. In Germany there is another hurdle, seniority, one collects “social points” for age, time with the company, family status, disability, …. And then the question is, if half the company can survive, also without the older, more expensive, managerial half, is this not better than bankrupting the whole thing? I lost a nearly 6-digit severance entitlement in such a bankruptcy.

Is there such a thing as “short work” in Canada? A company or more often the whole industry branch goes through bad times. Workers, company, and the unemployment office strike a deal like:

Workers work only 40%, take a hit of 10 % of wages, the company pays 70%, and the unemployment office fills up the remaining 20%. The workers use half the time off for further education, like learning English, new machines, first responder aid, flower arrangements (people got a little bit agitated about that one : - )


he got himself a doomsday job,

a far more sinister explanation. Both US and UK have a fiscal cliff of 8% GDP government deficits in front of them. For the US the course seems to be pretty clear, taxes go up for everybody back to Clinton levels, probably in 2 steps, the bloated military gets cut by 20% over like 10 years, and the social security pensions get decoupled from COLA, and shrink by 1% for each of the next 10 years. Problem solved.

For the UK it is not so easy. Taxes are already high. The amount coming from finance jobs expected to shrink. Not that much to cut in the military, the last carrier? Pensions are already pretty stingy. And London was already burning last year.

Without the backing of the ECB, the BofE is vulnerable for speculative runs (remember Soros 1992?). Public debt is exceeding 90% GDP, and this after a “bloodbath budget”. I see plenty of opportunities for a governor of the BofE to be forced to very unpopular decisions, like hiking rates in a deep recession. And very little chance to become popular.

In such a situation, when people are dusting off the noose, you might find only people for the Job, who do not want to retire in England, but are somehow acceptable to the public. Carney fits that profile.

Without the backing of the ECB, the BofE is vulnerable for speculative runs (remember Soros 1992?). Public debt is exceeding 90% GDP, and this after a “bloodbath budget”. I see plenty of opportunities for a governor of the BofE to be forced to very unpopular decisions, like hiking rates in a deep recession. And very little chance to become popular..

False. The Pound is no longer fixed to the Euro/Pre-Euro basket and the BoE is not obliged to defend it. If it falls, that is the market's choice. Carney, of all people, would be very, very reluctant to intervene as Canada has had a floating currency for most of the period since WWII and the Bank of Canada hasn't intervened in currency markets in nearly 15 years. The pound will not be "defended", it doesn't need it and it won't happen.

Further, there is no "fiscal cliff" in the UK, the UK has run much larger deficits and debt levels before and been fine. The "Fiscal Cliff" in the US is a nonsense political arrangement that invokes ridiculous cuts in a few months if a deal is not reached; it is a symptom of the US's divided Executive/Legislature and the combative budget process that creates.

Canada doesn't do "half-time" arrangements, they are pretty rare. Unions in the private sector are weaker and management more combative. They just cut people.


you make a good point. I had more the debt than the exchange rate in mind, this time, requiring rapidly higher risk premia / interest rates. The UK used to be my posterchild, that countries can run up debt up to 250 % GDP (1813 AND 1945) and pay it down afterwards. Point is just, these 2 cases were in a fight over life or death and not for chronic overconsumption. So far investors dont seem to appreciate the fundamental difference. But I doubt it very much that anything substantially above 120% will be tolerated. That would be 2016/2017.

I have trotted out the "short work" concept several times in various blogs. Most German folks think it is a good idea, but apparently most others not. Interesting. We have that since the 1920s.

We have built even more automatic stabilizers, like work hour accounts "Arbeitszeitkonten", but all that makes only sense in a world of "social partnership" with long, more or less life time employment expectations.

"The gimmick is that a contract worker (often white-collar) will incorporate themselves and deduct business expenses. The employer/contractor owes no income tax or other payroll deductions. If the worker has no other source of income other than the employer/contractor, this amounts to a tax fraud and the CRA can, has and will declare the person to be an employee and the employer to owe income taxes that should have been withheld."

That isn't tax fraud. If the company is, in fact, an independent contractor, the arrangement works fine. The problem is that the legal distinction between an independent contractor and an employee is a subtle one, too subtle for a lot of people. Where the company isn't a bona fida independent contractor, but it's really just an intermediary be an employee and its employer, its caught by the so-called "personal service business" rules. It's not fraud, but it's also not an effective tax minimization strategy.


just a recent US source on the situation in Spain:


For how much did a Canadian visa go so far ? You got some discount competition : - )

Bob, Determinant: years ago I worked for a division of a fortune 500 (call it Giant Enterprise) that pulled this. They were on e.g. floor 25,26,27. Down on 24 was a branch of a head hunting firm devoted to filling positions for them. Everyone sat in the Giant Enterprise office, had a Giant Enterprise manager for a boss, used Giant Enterprise equipment etc ... The head hunters ecouraged people to 'incorporate', but if they didn't, they were employees of the head hunting firm assigned to Giant Enterprise. {ay checks came from the head hunter. This meant that Giant Enterprise could cut people loose without notice or pay-in-lieu of notice because they didn't work for Giant Enterprise, and the head hunting firm would just claim that it was a condition of employment that people would periodically have no work. Of course, there were no benefits or pension or RRSP contributions of any kind.

They must have raised CRA's hackles somehow though, because while I was there they sent around a memo reminding managers that they couldn't repeated cut people loose and bring them back a short time later, and that anyone who had been on the treadmill more than 2 years should be hired as a regular full timer or, preferably, terminated for a period of more than X months (I forget what X was).

Needless to say, it wasn't a nice place to work (well, let's face it: being a cubicle serf is not really much of a life) and one fine day, about 6 months after I started performing at this circus, I walked out and never went back.

Patrick nailed it, that is precisely the situation I encountered in that interview. I was to be employed by the headhunting firm (even though I responded to an ad from the company itself) and was advised to incorporate during the interview.

The CRA has a bulletin on the determination of who is an "employee" for tax purposes and who isn't. The case I described very likely fell afoul of that bulletin. They were encouraging contracted staff to use incorporation and a liberal interpretation of business expenses to save on income tax in lieu of a direct employment relationship.

It is plainly a strategy to bypass the Employment Standards Act and save a bit on taxes by squeezing the contract employee for the tax liability, not the contracting company.

I didn't regard it as honest nor as a situation I cared to be in. I didn't have much choice at the time as I was on EI, but I wasn't hired anyway.

Patrick: "They must have raised CRA's hackles somehow though, because while I was there they sent around a memo reminding managers that they couldn't repeated cut people loose and bring them back a short time later, and that anyone who had been on the treadmill more than 2 years should be hired as a regular full timer or, preferably, terminated for a period of more than X months (I forget what X was)."

I'm not sure that would have been a CRA issue, because the "employees" who didn't incorporate would have been employees of the head hunting firm (with the head hunting firm acting as an independent contractor), making for no obvious tax advantage. I suspect (but don't know, not being a labour lawyer) the problem there is that while tax law (at least in Canada) is very dependent on legal form, employment law is likely much more substance based (since it often performs a remedial purpose, judges are inclined to read it purposively, rather than technically). If you are, in substance, an employee of Giant Enterprise, I suspect a decent labour lawyer would go after Giant Enterprise as the employer in a wrongful dismissal suit (perhaps on the basis that the head hunting firm was nothing more than an agent for Giant Enterprise - if, as Determinant describes, the job is advertized as being for Giant Enterprise, that would probably be a pretty comeplling argument), notwithstanding the technicalities of the employment contract.

Determinant: Typically in the cases I've seen, it is the "employee" who is looking to incorporate to save taxes, not the "employer". In the process, they often manage to screw themselves. Unfortunately, a lot of (otherwise smart) people, employees and employers alike, are too clever for their own good when it comes to tax planning.

It probably was too clever for everyone's good.

Look at it this way. Another Big Enterprise (who advertised) is willing to pay X. The employee who gets contracted gets X-Y if they work for the headhunting firm as an employee, but gets X-Z if they incorporate and aggressively recognize business expenses. Y is the costs of taxes and other benefits for the contracting firm.

As X-Z < X-Y, which means Z < Y, X-Z is the true market rate, the one the employee really wants. If Z is the aggressive tax savings, then X is lower than the cost of having an employee directly, Another Big Enterprise and the contract employee are in fact splitting the "savings". This is exactly the reasoning that was explained to me at that interview, without being so direct about the aggressive tax interpretation.

It is the tax system that loses through reduced tax revenues and the employee who loses through the loss of standard employment protections.

It is also a CRA issue because that determines who is liable for payroll withholding taxes. If the worker is a self-incorporated contractor (a case both Patrick and I encountered), they owe the money themselves. The withholding system is designed to place the largest entity (Another Big Enterprise) on the hook for withholding of income taxes from pay stubs.

Here is the CRA's view of employment relationships:


Oh gosh, I'm soooo OT. Sorry ... Bob: yeah, I don't really know if it was CRA or lawsuits or some combination thereof. My thought at the time was that maybe CRA had their panties in a knot about CPP and who should pay what given the substance of the employment arrangement. Similarly for EI, especially since the incorporated people would not be eligible and might find that surprising (software developers and electrical engineers are often not particularly literate when it comes to these sorts of things), and the EI investigators might start asking awkward questions. But I don't really know, being one of the afore mentioned incompetents.

I like Nick's comment at Nov 27 @ 10:51 AM.

I'd go even further and say that in regards to the LOLR action of 2008 and '09, so much of that was conducted by the Department of Finance through mechanisms like the IMPP that direct attribution to Carney of specific LOLR policy becomes difficult.


"The UK used to be my posterchild, that countries can run up debt up to 250 % GDP (1813 AND 1945) and pay it down afterwards. Point is just, these 2 cases were in a fight over life or death and not for chronic overconsumption."

A very important distinction. Military spending normally falls sharply after a war, because wartime military spending is not an open-ended commitment. Nor is fighting crime. Health, relative poverty, public safety, transportation, education etc. are all open-ended commitments, where there is ALWAYS some plausible way of spending existing money + whatever other funds the department can secure. There will never be a "mission accomplished" moment, at which expenditure can be reasonably cut.

"So far investors dont seem to appreciate the fundamental difference."

I suspect they do, but quantitative easing and a lack of alternative assets due to a weak and depressed economy has kept up the value of UK government bonds.


from my perspective some folks over there will be pretty disappointed in a few years.
Either those, whose social goodies will be cut substantially, or those, who do not get the value of their gilts, one way or another.

I somehow doubt that those unruly canadian subjects of the crown, who do not even want to pay their tuition fees, will come to the rescue of some english pension funds,

nor is there some love lost on the continent:

Italian Monti just telling Cameron "go get a vote, in or out", in public, is not how we talked with each other until recently. Last week I also told some Irish folks what we could do, if they dont pay their debt against the european people. They were not amused.
I still think, it was "fair and measured" : - )

Point is just, the continent can do easily without the isles, but not the other way around, ... , just like 1813 : - )

Carney will certainly not have a boring job, as until now.

genauer: Very Christian of you. Anyway, careful what you wish for! There's an English proverb: if you owe the bank $100 that's your problem. If you owe the bank $100 million, that's the banks problem.


I am no Xian, and I was not in any way specific here, what consequences a criminal default would have. There is an important difference between "can not" and some smug "want not".

Italian Monti just telling Cameron "go get a vote, in or out", in public, is not how we talked with each other until recently. Last week I also told some Irish folks what we could do, if they dont pay their debt against the european people. They were not amused.
I still think, it was "fair and measured" : - )

What Austrian Economic planet did you come from? Holders of British Gilts took inflation risk when they bought those bonds, there is a broad selection of inflation-indexed gilts available.

On Cameron: Monti's opinion carries no weight in the UK, the UK will never join the Euro after this economic crisis.

On Ireland: Ireland could and probably would junk the Euro if push came to shove. As Ireland does not have an independent interest rate from Germany, nor even a mark-up, there is nothing anyone can do if Irish prices inflate ahead of Germany's.

I believe Germany cannot level sanctions against another EU member under the EU Treaty.

Of course, all lenders take repayment risk in the real world.

Neither a borrower nor a lender be,
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.


The Bank of England actually adopted an inflation target in 1992 (wiki Consumer Price Index (United Kingdom) 2.0% CPI). But you are right, nowadays everybody knows, you can not trust the Governor of the BofE anymore. As long as the deviation is not too far, people who retire in the UK will still buy gilts, because of the substantial exchange rate risk, as W Peden argued above. But this has limits, and as it takes some years to frustrate people sufficiently, it takes at least as many years to repair broken trust.

England could borrow in the past huge amounts of money, at very low costs, because people were sure, that they could and want to pay back.

Germany had to work very hard to establish our credit rating, after de facto defaults after each world war.

The broken inflation promise is not my problem, that they fudged the LIBOR rate, is of little concern to those folks on the continent, who have fixed rate mortgages. The problem is more that many believe that was with at least a tacit agreement of the BofE, via the other candidate, Tucker. And there is that general, but solid impression, that a lot over there in the City is run and done in collusion of old boy networks, by the bankers, through the bankers, and for the bankers.

The hope of course is that Carney fulfils the expectations and cleans up. I am a little skeptical, how much he can do without “home power” ( friends´, connections, a job on time), and some folks don’t forget to mention that he too is a “squid”, (a.k.a. Goldman Sachs Alumni)

Monti’s quip was actually not about a no more existing invitation to join the Euro, but about encouraging Cameron to leave the European Union, if the English believe that this is beneficial for them.

It reflects an increasing believe on the Kontinent, that they would be better off without the isles, the south-west spending coalition would have a clear majority : - )
More and more people are fed up with basically every time somebody throwing some tantrum, demanding some specials, extra rebates, and at the foremost, the English.
How you associate this with “Austrian”, I don’t understand.

What the People of Ireland owe the People of Europe are not commercial loans, which should reflect some risk taking. They got some extremely generous aid package from the people of Euro(pe), of which Germany is only 27%, after they screwed it up all by themselves (e.g. the fateful 9/29/2008 decision, RebelEconomist (see above) has brought up repeatedly).

Several countries lending to them face higher interest rates themselves. Remember Bagehot on LOLR: lend freely, against good collateral and at a steep rate?

The IMF program was pretty benign, because it is clear that Ireland can pay it back easily, and still have a higher living standard than the average of those, they owe it to. To blackmail or even bite the helping hand of a trusting European community, and to think that the rest just accepts that, and doesn’t retaliate …. , it took me actually some time, to realize that some folks have that kind of crazy thoughts.

Ireland will pay for the foreseeable future some additional risk premium beyond the German rates. Ireland already corrected most of their deviant inflation behavior. And the officials give the impression, that they know that they better stick exactly to the plans drawn up by the IMF, 2 years ago.

Whether anybody is better off outside the Euro, they have to decide themselves. It was not Germany pushing for it.


a well functioning credit system is the lifeblood of a modern society. A piece of gold in your vault is still the same one year later, it has not added value. In a functioning society, there should always be some opportunity, to invest assets profitably. For every Euro saved with interest, somebody has to borrow one. There is always some risk and some transaction costs involved, causing the spread between lending and savings interest rates. Some debtor die, some business does not develop as planned. Point is just, as old as mankind, some also try to cheat, driving up the risk premia for everybody else. So we have to carefully discriminate between "can not" and "want not", accept the losses on the first, and punish the later.

This will never end, and always look a little different than 50 years earlier.

When I needed to invest in a profitable business, I took on credit too. I believe that a certain amount of public debt (my guess: 30 - 60% of GDP) has a healthy stabilizing effect on the whole market, and without credit resources would sit idle and rot, as in the late socialist countries, people hoarding all kinds of stuff.

And bringing this back to the topic, the bank of England was envied for a long time to be the benchmark in this game, low risk = low rates.

Some welcome balance from William Keegan to the adoration of Carney, here: http://www.guardian.co.uk/business/2012/dec/02/george-osborne-mark-carney-cost-principles

@Genauer, I noticed that your comment on irisheconomy.ie got chopped, and wondered what you said! I cannot understand why more people with an interest in economics are not more positive and curious about German economic management (like the short work programme you mention). Almost uniquely among the established economies without natural resource endowments, the Germans seem to be getting it right. Hopefully, they won't get dragged down by accepting too much responsibility for the less successful eurozone members (eg through TARGET2).

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