The world is sleepwalking towards a fresh economic and financial crisis that will have devastating consequences for the democratic market system, according to the former Bank of England governor Mervyn King.
Lord King, who was in charge at Threadneedle Street during the near-death of the global banking system and deep economic slump a decade ago, said the resistance to new thinking meant a repeat of the chaos of the 2008-09 period was looming.
Giving a lecture in Washington at the annual meeting of the International Monetary Fund, King said there had been no fundamental questioning of the ideas that led to the crisis of a decade ago.
“Another economic and financial crisis would be devastating to the legitimacy of a democratic market system,” he said. “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 added that the US would suffer a “financial armageddon” if its central bank – the Federal Reserve – lacked the necessary firepower to combat another episode similar to the sub-prime mortgage sell-off.
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Decades of overt government manipulation of financial markets via interest rates and money supply may finally be reaching the point of being ineffective.
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