From our studios in new york city, this is charlie rose. The mpc intends at a minimum to make paying the current accommodative stance of monetary economic slack has been substantially reduced provided this does not put at risk financial stability. Mark carney is here. He was previously governor of the bank of canada. He is the first nonbrits to be the governor of the bank of england. He gave a speech at the Economic Club of new york where he said he anticipated the economy would fulfill the hopes and dreams of the holiday season. Latestu. S. , the unemployment numbers have led some speculation of a tapering of the federal bond buying program. Im pleased to have mark carney at this table for the first time. Closer to have you here. Let me start canada. And what canada went through. What it wasll me about that business that instructed you. There are two things. Side, wethe financial had an advantage in that we saw very early on some of the worst excesses of the shadow Banking System. We had the problems in a Little Corner of the canadian market. That sleepycorner, Little Corner, 20 billion Canadian Dollars in assets, it afforded ultimately a structure of leverage that you see with 250 million u. S. We saw that early on because it was one of the most egregious examples. To leverage the system. That was the fall of 2007. That made his move quicker than some others where the systems were more resilient. We thought the problems would go away. That was instructive in terms of how much leverage you can get through a chain in the system. Just a commercial favor. You have to combine a certain structure products. The second thing i would say is that and that is very complex. Thing, i think we contributed we have some very simple regulations. Andmany assets you have things like that. That managed to help save the core of our system from the and u. K. In the u. S. Part of this is recognition. It came from the sense that you are able to have a measure of where you were. You had some understanding of what the leisure leverage was doing. Line of sightod as to how much leverage was in the system. You have to move quickly. That is the lesson that tim geithner and his administration did with the u. S. Banks. King and the u. K. In advance of my arriving, they put 140 billion pounds of private money into the bank their. You said that a recovery may be gaining pace, but our economies are a long way from normal. Take a look at where you think we are. I think it is really just beginning. Beecher recovery is beginning. Arecore of the systems being repaired. We have not yet seen business is really starting to invest, really starting to believe. Businesses recognize that they can get bigger businesses to capital at very competitive rates. Of dramaticconcerns events, whether from europe or from the Financial System, those concerns about. Ebbed. The uncertainties about the future of demand, where will come from. Can i wait another quarter, another quarter. This is the start of when we will need to see businesses moving forward. It reflects back on what households are doing and what is happening with the Global Economy and the regulatory response. All of these factors will influence the day to date decisions of businesses. Spirit of thehe season, be more positive about the nearterm outlook. I feel good about the nearterm outlook, but the longterm outlook will depend on these bigger questions of what happens to productivity and what happens to the socalled supplyside of our economy. Thats where you see demand going over the next few years. There are still big headwinds. Household is rightsizing their balance sheet. They are saving more than before. The u. K. Situation, what we dont have, we have not had that productivity growth that we need to get real rate real wages growing. We had a sharp pickup in the last few months. It is because households of moved away from having extreme levels of cautionary saving and move down to normal levels. Perceived proceeds of income start to grow. In many that aspect economies. As you are well aware, in a series of emerging markets, you have some years of adjustments. Two years of adjustments, whether it is india or indonesia. Temper continuing to export demand to the u. S. And the u. K. And the european situation is vastly improved in terms of the risks. The dynamism is not yet there. The dynamism will not be there, one even begin to be there, until the work that the ecb is doing on fixing the Banking System over the course of the year is completed. You think they can do that . Towithout question they need do that. They fully recognize it. That certainty, i think, will ensure that they do it. It is a long process. Similar ton approach what the u. S. Did. Rubs justiceely over the threemonth. Over the threemonth period. On the supply side . Like the supplyside is a big question. How much permanent damage has been done to productivity . To the potential of our economy . How many workers have lost their skills . These are real issues. I will say that one thing the two are linked. Whether it is the Federal Reserve or the bank of england, we will see that theres an impetus to getting stimulus now, to get people back into work as quickly as possible. We want to encourage businesses to invest as heavily as possible, or we will see some detriment to the supplyside. That is the case. Now,limited extent right is catalytic. The supplyside issues, i think the biggest supplyside issue, and i would say this even more strongly than a lot of people, given how open the british art and londons role as a Financial Center the supplyside issue is maintaining an open role economy. Whether it is on the financial side or the trade side. And what is needed to bills the confidence from jakarta to japan to jacksonville, any of those centers, the system is going to be there and default. Is slipped over in terms of talking about the u. K. I want to. What is happening with the u. K. Mortgage market . If you look at the Mortgage Market today compared to where was in 2007, precrisis, it is rocksolid. 2008, dixie, percent of the mortgages you would put 10 down on a house. Now 85 of the mortgages are the other way. Standards have improved dramatically. This is a housing market. Firmlytill relatively valued. Lets put it that way. Not just in london, but more broadly around the country. Relative to historic levels. And where it started to pick up again. Within the context of households that have paid 30 Percentage Points of debt relative to their income over the last five years. That is good. I still have a fair amount of debt relative to income. More so than american households. If you look at that situation, there is some welcome recovery housinge market market. Lets be prudent and accurately. Lets make sure that it moves in a productive way. Were taking steps to improve that. If you said there are five simple steps to deprive describe our approach. We are open for business. Thats one of the lessons we have taken from the financial crisis and where the world needs to get to to have a more resilient Financial Institution we need more financial resilient Financial Institutions but we need Financial Markets that are going to be more resilient. They are more like the equity markets. We did not like the prices of equity in fall 2008. Transact the global market. You could not transact you were trying to world shortterm from a bank. These are chilean dollar markets that got shot and brought the system down. Trillion dollar markets that were shot and brought the system down. The central Banking System is part of those reforms. There is an importance to collateral. Making more exposures to each other. I will lend you money there are huge market that will develop and collateral. The central bank is not just a lender of last resort. Then Institution Traditional role of the bank of england is founded on, but it is the lender of last resort to those markets so that those collateral markets keep functioning. The derivative market keeps functioning. The system keeps functioning. Even when the next shot comes which inevitably well. Theyre open for business because we understand that we have a continuing role to keep those markets functioning. We want the system as a whole to be functional. Ask what are the lessons from longterm Monetary Policy . I think a very simple one of itonetary policy didnt take seriously the financial crisis. Financial systems want in the models. There was a downplaying of active prices. Credit dynamics were economic. Rowth for the system there was a downplaying as well in terms of ignoring the interaction between Monetary Policy and have the Financial Markets behave. Circumstances of policy encouraged extreme behavior. I think the lesson that we have andn at the bank of england what british authorities more broadly have taken has been that you need Monetary Policy in a complement threeway, Macro Financial policy in a couple entor he way complement ary way. We have to provide a lot of stimulus. That stimulus can create risks, like the housing market, that is one example. The hefty take other steps to reduce that risk and mitigate those risks. If we do not, we will create bigger problems down the road or we will have to pull out too soon on Monetary Policy. What are the steps we ought to take . We have reinforced underwriting standards, there are a variety of ways that we can adjust the terms by which people can get mortgages. We have asked banks to put more capital behind the mortgages. Not necessarily because of the risk of default, but because of the broader economy wide effects for example. We have measures that we could do. It is just that Monetary Policy to do smaller things early enough that you dont have to do the big things later on. Theres is an element of anticipation here. What is your take on what is happening in japan . Ask what is happening in japan the product of years of challenge that i was really talking with today. A liquidity trap. The ability to get real Interest Rates down quickly enough that and have a well functioning Financial System that transmits that to a broader economy. They are in a position where with the wisdom of hindsight, it is always easy. But the 20. By not taking the big steps early enough, they have not taken the really big steps now. Recognize, the third aero is absolutely crucial. Arrow is actually crucial. This is a common theme with the u. K. , europe, u. S. , japan. We can take steps today and we have Central Banks to pull for demand to keep our economy going. That is what we have done. It works ultimately it incomes grow in the future. And it is the same whether it is a small move here were a big move in japan. The measures that they need to take on the socalled third arrow are absolutely fundamental or there will be no group of incomes in the future. In their absence, they will have to pull for each even more demand. In the words of my predecessor, tomorrow becomes yesterday. You still have to fill in that demand. It is absolutely instructive. It is instructive for all of us in terms of the importance of having coherent policy now. When you and other central bankers from china to europe to latin america look at the United States, what concerns you . To say, and i always hesitate to comment on another group politics, but it is widely knowledge, here as well as in central banking circles, that the series of decisions on the fiscal side, the series of shortterm incentives in the worst of word, we havethe just gone through 2013. Another disappointing year, as i said make each today. In mye had as i said speech today. We have had huge fiscal drive. Fixoes not this bounce the longterm fiscal problems. You have a lot of pain and not a lot of longterm gain. We will be left of that next year. There are some tough decisions. What concerns us the most is the that it is a typical shortterm situation without longterm benefits. You can look at europe, and extremely ethical situation, but in part, by taking longerterm Structural Reforms that is a more real answer. What gives you pause . Banker who knows about the relationship between economies, what is it that worries mark carney . I worry about a couple of things. All stem from u. K. Issues. The address broader questions. Personally i worry about as finishing this Global Financial reform agenda. I worry about it for several reasons. I worry about the risks if we do not finish the job. Secondly i worry that we wind up with a much more fragmented system on the Core Financial side. That will be associated with fragmentation in commerce. We will undo many of the things we have done. I worry about that. I think the challenges that we face are considerable. They are the product of tremendous success, and we always knew we would face these issues. Getting the sequencing right, and the magnitudes right, that will be extremely challenging. To my firstack point, which is that we need to take steps that assist in this rebalancing. We need to have the patience to recognize what is right for china may not be perfectly may not perfectly fit the timetable for other countries that are looking to rebound their economies. I will give you a small sample. We are looking to have a trading hub. Part of the reason why were looking to do that is because it is a traditional rover london and because internationalization is in chinas interests. Those are the two things i worry about. Also share a medium to long term concern about europe. I worry about what ultimately will be needed to build the institutions to ensure that the euro is viable and resilient as it needs to be. The economic timetable and the political timetable, which really coincide, those are the three things. Has David Cameron been able to do with the economy . And mervyn king . What happened in the u. K. Has decisionsvery tough were taken over the course of the last few years. I am going to state my patch. I have to go back there after this. [laughter] with respect to the banks in particular. And others went back and said, you do not have enough capital. Your numbers look good, but they really dont. That concern is that we will see the benefit of that. I think by retaining their commitment that will help make a difference. Remember, thes labor market is very flexible, particularly in the european economies. If anything, it has become more flexible since the crisis. That is unusual. Part of the consequence of that is that a recession has been bad enough that the Unemployment Rate should be 14 . It is 7. 6 . By sticking to the first principles, it has made a difference. There is a debate about growth and austerity. Is that just a gross oversimplification of what politics allows . I think the rhetoric in the quites sell them often did not match what was actually happening. The scale of austerity in the United States last year has dwarfed anything in europe. The scale of austerity in europe next year will be less than 1. 0 . At least in terms of the overall level of fiscal drive. You would not know that from the way it is predicted. Not necessarily know it by the way the uks compared to the u. S. , macro policy, whether it is monetary or fiscal, can play a role. In extreme circumstances. Leave the fiscal authorities to the side until they need to take bigger steps is their responsibility. But when you think about monger term medium to longerterm growth, it will not come for monetary or fiscal policy. You have to get those fundamentals right and it will come from a host of other policies. One of the points i was trying to make my speech today was, if there are some issues in the youre really if concerned about the supply side, if you are concerned about productivity growth, it is not a game for the Central Banks. It is not a game in terms of the budget. These are fundamental issues in terms of education and structure , in terms of trade and financial reform, is bigger and tougher issues that you cannot distill into a soundbite or a 32nd explanation you have to execute them year after year. I know you didnt come over here to give janet yellen advice. [laughter] but is it time for tapering . [laughter] thats right, i didnt come to give janet yellen advice. I am confident that janet and the other members will take the right decisions. The u. S. Has flexibility in terms of they have multiple instruments that are moving. Are cuts onshore rates, and we will leave it to them we will want to be very interested to see the results. From your college experience, what was more important, clang hockey were studying economics . Or studyingockey economics . I sat on the bench a lot when i play hockey. [laughter] i did not learn that much hockey. I would say studying economics. There is a great advantage to the american liberal arts system. That mixture of the technical with the liberal arts element. It is unique in this world. I totally agree with you. It is almost like we are shifting away from an appreciation of what the liberal arts does for you. I entirely agree. Education, andn i tell my children this, you want to save math and statistics, even if you dont really like it, as long as possible, because the discipline of that thinking will help influence broader decisions. , and i saw you talked about this two weeks ago, im not sure you have the nobel successfulu would be you do need both to take full advantage and to have actual human progress. Thank you very much. It is a pleasure to have you on the show. I hope we can do this again as we watch what is happening. Time,obviously a crucial and not because of what we have but because we went through that people are asking, have we done enough to avoid that . Have we done enough . We have gone a long way in terms of financial reform, but the bigger questions, we are not talking about them. I want a world where you dont want me on your show. Thank you. Thank you very much. Back in a moment. Stay with us. This is r