Lord Turner’s Mansion House speech on the:
- Causes of the financial crisis
- Policy response and the redesigned regulatory structure
- Need for new policies in a deleveraging economy.
“Post-crisis deleveraging is very, very difficult to manage: that’s what the economic history of Japan from 1990 to today demonstrates – and that’s the lesson policy makers and economists have increasingly learned in the last three years. And if we do not carefully design policy in response, the deflationary impact on economic growth could extend for many years ahead. As the IMF noted this week, when it published its latest downward revisions of global growth projections, ‘risks of recession in the advanced economies are alarmingly high’.
The policy response has to include, and has included, unconventional monetary policies – quantitative easing – which as best we can tell has produced a path of real output growth and inflation slightly higher than would otherwise have occurred.
But quantitative easing alone may be subject to declining marginal impact, the economy facing a liquidity trap in which replacing private sector holdings of bonds with private sector holdings of money has little impact on behaviour and thus on demand. So optimal policy also needs to include a willingness to employ still more innovative and unconventional policies, and to consider the combined impact of multiple policy levers – monetary policy, Bank of England liquidity insurance, prudential regulation and direct support to real economy lending – which we used either to consider quite separately, or else avoid entirely. “