King urges supply side reform

The global regime of low interest rates is unsustainable, and countries need to focus on "supply side reform" according to former Bank of England governor Lord Mervyn King.

Lord King told the Diggers and Dealers conference in Kalgoorlie this morning nations needed to boost productivity and improve their citizen's belief their incomes will rise,

He said he believed sustained low interest rates across the world would not be enough to bring about a broad-based economic recovery, as workers in developed economies were no longer responding to economic stimulus measures aimed at driving consumer-led economic growth.

Despite the massive stimulus injected by central banks - which Lord King said was the biggest the world has ever seen - the recovery from the global financial crisis has also been the slowest.

Lord King was the governor of the Bank England from 2003 to 2013, and led the UK central bank through the global financial crisis.

He told delegates the GFC had drawn a line under the willingness of consumers to spend at unsustainable levels, and the only way to drive economic growth is to renew people's faith that their future income will rise.

Long periods of low interest rates in developed nations, which Lord King said was one of the primary drivers of the GFC, had reduced the ability of the macroeconomic policy set by central banks to return developed economies to a period of real growth.

He said governments instead need to focus on productivity measures, rather than relying on central banks to keep money circulating through the economy through low interest rates and other stimulus measures.

Interest rates would need to rise as part of those measures, as a necessary step in returning major global economies to equilibrium, he said.

The West Australian

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