Mervyn King: Global economy ‘sleepwalking towards new financial crisis’
Former Bank of England governor lambasts those who think banking system has been made safe
Mervyn King, the former governor of the Bank of England, has warned that a looming financial and economic crisis could rock the world in the near future.
Speaking at the annual meeting in Washington of the International Monetary Fund and its sister organisation the World Bank, Lord King said that there had been no questioning of the fundamental ideas that led to the crisis, with key institutions returning immediately to the status quo.
In his lecture, the former governor, who led the Bank through much of the global financial crisis, said: “Another economic and financial crisis would be devastating to the legitimacy of a democratic market system. By sticking to the new orthodoxy of monetary policy and pretending that we have made the banking system safe, we are sleepwalking towards that crisis.”
He observed that the world will endure an extended period of low growth with ineffective ultra-low interest rates, adding: “Following the Great Inflation, the Great Stability and the Great Recession, we have entered the Great Stagnation.”
Indicating the extent to which he believes a serious crisis is likely,he argued it is now time for the US Federal Reserve and other central banks to initiate talks with politicians behind closed doors to make legislators aware of how vulnerable they would be in another crisis.
He said: “Congress would be confronted with a choice between financial Armageddon and a suspension of some of the rules that were introduced after the last crisis to limit the ability of the Fed to lend.”