Despite record low interest rates, printing new money and other emergency measures, governments had not yet addressed the underlying problem of overspending that was at the root of the financial crisis, Sir Mervyn King warned. The consequences threatened to “inflict pain on everyone”, he said.
In a sobering assessment of the world economy, Sir Mervyn warned that even if world leaders managed to agree on emergency moves to support the banking system and debt-stricken economies such as Greece, they would still not have averted the threat to global stability.
Unless overspending by Western economies was curbed it would bring about an ever-larger debt crisis that would mean much lower long-term growth rates, he said.
Worse, he suggested, some of the measures being deployed to counter the short-term situation could actually exacerbate fundamental economic problems, worsening the debt crisis and leaving taxpayers footing an even larger bill.
Sir Mervyn delivered his gloomy verdict as official figures showed that inflation surged to 5.2 per cent last month, squeezing living standards and eroding the value of savings and pensions. Inflation was “at or close to” its peak and would soon start to fall back towards the Bank’s two per cent target, he said. » | James Kirkup | Tuesday, October 18, 2011
