Mervyn King was in no doubt about the importance of global trade imbalances when giving evidence to the Treasury Select Committee in June.
“I am afraid we are doomed to repetitions of the problems that we have seen in which there will be, from time to time, quite significant crises in the world economy, precisely because the positions of the surplus and deficit countries are not co-ordinated, and the problems that result from that in financial markets lead to substantial recessions”.
“The ultimate cause of what we have been through in the last two years was the imbalances of the world economy and the inability to cope with the resulting capital flows, and I do not think it is a question simply of exchange rates, and it certainly is not a question of which currency we denominate trade flows in, it is much deeper-seated than that.”
“It is about ensuring that the policy frameworks of countries fit together, and at present, if you have countries which, on the one hand, believe in domestic monetary frameworks and floating exchange rates and other countries that believe in development strategies in which a large current account surplus is a key part of that strategy, these things will not fit together well.”
Why then has the governor with his “iron fist” allowed such a feeble article on global imbalances to be published in the Bank’s latest quarterly bulletin.
