In August 2007, when markets nearly froze as Wall Street digested the first wave of subprime mortgage and related asset defaults, King initially was not moved. As the U.S. Federal Reserve and European Central Bank added billions in liquidity to the financial system, King refused to participate, arguing that the tactic would increase the intensity of future crises.
But events soon took on a momentum of their own, and King changed his stance. In September 2007, when Northern Rock experienced a bank run, King sensed a threat to the financial system and added liquidity, calming London's credit and equity markets. Still, Britain's press labeled him "Swervin' Mervyn."
Unwarranted criticism?
London-based economist Mark Chandler told BloggingStocks Monday the King criticism "is unfair, and unwarranted."
After all, Chandler noted, "King is partially responsible for the U.K.'s public inflation limit goal of 2%."
"He is a monetarist in the Greenspan and Bernanke sense, it's just that he's been a victim of some rather extraordinary circumstances," Chandler said. "Undoubtedly, he knew his reversal would create a bit of a row [squabble] with the monetarists, but I think most have concluded it was the right stance."
Recent economic data appears to be supporting King's stance, Chandler said. Chandler noted that although the U.K. housing and credit markets have fared better than the U.S.'s, "there is a sense in economics circles that the U.K. will begin to see more negative consequences in 2008." U.K. housing prices rose about 5% in 2007, but have been falling since October 2007, he said.
"No one senses that a bubble has burst, but you do get the sense that air is being let out of the housing balloon, and if that's the case, King will be viewed by the monetarists as a star performer, nothing less," Chandler said. Chandler concluded that King, whose five-year term is up in June 2008, should be reappointed to a second five-year term.
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