Appreciated over 13,500 , which was 27 times the amount of the s p 500 during that same period. So, yeah, we missed something. Everybody misses some things but we built one heck of a business. Its still one heck of a business and now its growing at double digit rates and were investing for the future and able to invest, be bold, focus on our customers, innovate, invest in r d, couldnt be more excited to be a private company once again. Rose mark carney and michael dell next. Captioning sponsored by Rose Communications from our studios in new york city, this is charlie rose. The m. P. C. Intends at a minimum to maintain the currently exceptionally accommodative stance of Monetary Policy until economic slack has been substantially reduced, provided by that this does not put at risk either price stability or financial stability. Rose mark carney is here. He has been governor of the bank of england since july of this year. He was previously governor of the bank of canada. Hes the first nonbrit to take on the role. He succeeded sir mervin king. The economy has avoided a triple dip recession and is showing signs of recovery. He gave a speech at the Economic Club of new york in which he said he anticipated the economy to fulfill the hopes and dreams of the holiday season. In the u. S. , the latest unemployment numbers have led to some speculation of a tapering by the Federal Reserves bondbuying program. I am pleased to have mark carney at this table for the first time. Welcome. Thank you very much. Rose pleasure to have you here. Pleasure to be here. Rose let me start with canada and what canada went through. Tell me what it was about that experience thats instructive for all of us. I think there are two things. First, on the financial side. We had an advantage in that we saw very early on some of the worst excesses of the shadow Banking System. So we had deep problems in a Little Corner of the Canadian Market called the nonbank commercial paper market. And that Little Corner, sleepy Little Corner, 20 billion canadian of assets that supported ultimately a structure of leverage that exceeded 250 billion u. S. We saw that early on because we have it was one of the most egregious examples and we realized the scale of leverage in the system and that was the fall of 2007 and that made us move quicker than some others whose systems were a little more resilient at that point and thought maybe the problems would go away. So we had that advantage. That was instructive in terms of how much leverage you can get through a chain in the system. So its not just the commercial paper. Youve got to combine it with structured products and combine those with Credit Derivatives and other aspects. The second thing i would say is and thats very complex message, it took me about five minutes to explain that. The other thing we, i think, contribute is that we had very some very simple regulations, a leverage ratio. A very simple test, how many assets did you have relative to capital . And that helped save the core of our system from the worst excesses that were seen in the u. S. And it has to be said the u. K. Rose but a significant part of this is recognition that came from the sense that you were able to have a measurement of where you were and you had some understanding of what leverage was doing. Exactly. Recognition a good line of sight to how much leverage is in the system and once you see that, once you recognize it, you have to move quickly and thats been the lesson whether it was what tim geithner and this administration did with the u. S. Banks, what mervin king and the u. K. Authorities did in advance of my arriving. Ill be clear, ill give credit where credits due, in advance of my arriving to put 140 billion pounds in private money to recapitalize the system. Rose in a speech you said a recovery may be gaining pace but our economies are a long way from normal. Five years after the crisis, take a look at where you think we are. Well, i think were its really just beginning, the true recovery is beginning. Because the core of the systems are repaired, as i just said. But we have not yet seen businesses really starting to invest, really starting to believe in these recoveries. Businesses recognize they can get the bigger businesses particularly, lots of access to capital at very competitive rates. I think the concerns of dramatic events whether from europe or certainly from the Financial System those concerns have ebbed markedly. So theres not those uncertainties. And the uncertainties really are about the future of demand. Where is it going to come . Is it going to be robust or can i wait another quarter . Another quarter . Another quarter . Or do i need to act now . And so this is the start of when we will need to see Business InvestmentGoing Forward and it reflects back on whats happening in the global economy, the regulatory response, these other factors will influence those day to day decisions. I tried to in the spirit of the season, as you referenced, to be a little more positive about the nearterm outlook and i feel pretty comfortable about the nearterm outlook. But the longer term outlook will turn on the bigger questions of Business Investment, what happens to productivity, what happens to the so calmed supplyside of our economies. Rose where do you see demand going over the next several years . Well, theres still big head winds. Households are still rightsizing their balance sheets. Theyre saving a lot more than they were before. If you look at the u. K. Situation, what we dont have we havent had that productivity growth that you need to get real wages growing. So weve had a pretty sharp pickup in the last several months but its because households have moved away from having extreme levels of precautionary savings and moved down to normal levels and as a consequence theyve been consuming and things have been moving. But that only precedes if incomes start to grow in subsequent years. So you have that aspect in the advanced economies. As youre well aware, i know, in a series of emerging markets you have some years of adjustment, one or two more years of adjustment. Whether its india, indonesia, things like that. So thats continuing to temper export demand for the u. S. , for the u. K. And the european situation is vastly improved in terms of the risk. But the dynamism is not yet there. And the die phamism wont be there, wont even begin to appear until the work the e. C. B. Is doing on fixing the Banking System over the course of the next year is completed. Rose you think they can do that . Without question they need to do that and they fully recognize it. Rose right. And that certainty, i think, will ensuring that they do it. But it is a long process. This is not an approach similar to what the u. S. Did which was effectively rough justice over a threemonth period and then recapitalization which helped turn things around. This will be a much more methodical process that is already under way. Rose and on the supplyside . Well, on the supplyside this is the big question. How much permanent damage has been done to productivity . To the potential of our economies . How many workers have been out of work long enough that theyve lost the skills, the attachment to labor, which are real issues. Ill say one thing, that the two are linked, whether its the Federal Reserve or the bank of england, we both see that this adds impetus to giving stimulus now to get people back into work as quickly as possible, to encourage businesses to invest as quickly as possible or else we will see some debt cement on the supplyside. Thats normally not the way Central Banks talk about these things but we think thats the case. To a limited extent we have a catalytic role, but the supplyside issues i think the biggest supplyside issue and i would say this even more strongly sitting in london given how open the british economy is, given londons role as a Global Financial center i think the core supplyside issue is maintaining an open global economy, whether its on the financial side, whether its on the trade side. And what is needed to build the confidence from you know, from jakarta to japan to jacksonville, any of those centers that this system is going to be there and it will be there for a while. Rose we slipped over in terms of talking about the u. K. And i want to. Whats happening to u. K. Mortgage market . Well, its if you look at that Mortgage Market today versus where it was in 2007, precrisis, its rock solid. Back in 2007 2008, at that point 60 of the mortgages you put less than 10 down on a house. Now 85 of mortgages are the other way. You have to put a lot more down on houses. The underwriting standards have improved dramatically. But this is a Housing Market that is still relatively firmly valued, lets put it that way. Not just in london. More broadly around the country. Relative to incomes and relative to historic levels and where its starting to pick up again and within the context of households that have paid down 30 of debt over the last five years, so thats good but they still have a fair amount of debt relative to income. More debt relative to their income than american households. So you look at that situation and you say, okay, theres some welcome recovery in the u. K. Housing market, but lets be prudent, lets act early, lets ensuring that it continues to evolve in a constructive way so we at the bank of england have taken some steps to help. Rose in fact, you said five simple words to describe our approach we were open for business. Okay, so one of the fundamental lessons weve taken from the financial crisis and where the world needs to get to to be have a more resilient Financial System is we need more resilient Financial Markets. Certainly we need to fix the banks and end to big too fail and we can talk about that if you want. But we need Financial Markets rose to be more resilient. More resilient. So theyre more like the equity market. We didnt like the prices of equities in the fall of 2008 but we can always get a price. You can always transact. You couldnt transact in the Global Derivatives market. You couldnt transact if you were trying to borrow short term. These are trillion tens of trillion dollar markets that shut and brought the system down. So those markets are viewed fundamentally reformed and this is where the central bank comes in is part of those reforms are the importance of collateral. People arent taking naked exposure to each other. I will lend you money if you give me securities or Something Else as collateral. There are huge markets that are going to develop in the use of collateral. The central bank is not just a lender of last resort, we think, in the future to an institution. The traditional role that the bank of england really founded. But its also the lender of last resort to those markets so that those collateral markets keep functioning so the derivative market keeps functioning so the bank funding market keeps functioning so the system keeps functioning when the next shock comes, which it inevitably will. So were open for business because we understand that we have a continuing role to keep those markets functioning so the system as a whole is more resilient. Rose i hear you on resilient Financial Markets. What are the lessons for Monetary Policy . From from well, i think the very simple one is that Monetary Policy got itself into a culdesac where it didnt take seriously Financial Markets. I mean, Financial Systems werent in the models. There was down playing of the importance of asset prices or credit dynamics for economic growth, for the risk to the system and it was a down playing as well in terms or in really ignoring the interactions between Monetary Policy and how Financial Markets behaved. So certain stances of policy encouraged extreme behavior. And i think the lesson weve taken at the bank of england, u. K. British authorities more broadly what theyve taken in reforming the bank of england has been that you need Monetary Policy and, in a complementary way, Macroprudential Policy in order to ensuring that in setting ill take today as an example. We need to provide a lot of stimulus to the u. K. Economy. We have big head winds from europe, from the currency, from ongoing deleveraging, from households. We need to provide a lot of stimulus. But that stimulus can create risk. You mentioned the Housing Market, thats one example. We need to take other steps in order to reduce those risks, manage those risks, mitigate those risks and if we because if we dont were going to create bigger problems down the road or were going to have to pull back too soon on Monetary Policy, which is the last thing we want to do. Rose and what are the steps we ought to take . Well, to reinforce underwriting standards. And theres a variety of ways where we could adjust the terms under which people can get mortgages if we had to. We could ask banks to put more capital behind every mortgage they give. Not necessarily just because of the risk of default but because of the broader economy wide effects. For example, housing boom and bust could have. So we have measures that we could do. And its just like Monetary Policy. If you do smaller things early enough you dont have to do the really big things later on. So theres an element of anticipation there, and thats what weve tried to do in the u. K. Rose whats your take on whats happening in japan . Whats happening in japan is the product of years of the challenge that i was really talking about today. Effectively a liquidity trap. Rose right. And an inability to get real Interest Rates down quickly enough and have a wellfunctioning Financial System that transmits that to the broader economy. So they here in a position where you get by with the wisdom of hindsight, you know, its always easy. Rose 20 20. Yeah, 20 20. By not taking the big steps early enough theyre having to take really big steps now. And i think as we all recognize the third arrow is absolutely crucial because ultimately when we really talk about creating wealth, for the steps were taking this is a common theme whether its u. K. , u. S. , europe, japan. We can take steps today and we have, the Central Banks to pull forward demand to keep our economies going, right . We lower the cost of interest, thats what it does. That works, ultimately, if incomes grow in the future. And its the same whether its a small move here or a big move in japan and so the measures that they need to take and the socalled third arrow are absolutely fundamental or else there wont be the growth of incomes in the future because of productivity and exports and other things. And in their absence theyll have to pull forward even more demand. In the words of again, my predecessor, you know, tomorrow becomes yesterday. And you still have to fill in that hole of demand. So its its absolutely instructive, ill finish with this. Its instructive for all of us in terms of the importance of having coherent policy now and being appropriately aggressive. Rose when you and other central bankers from china to europe to latin america look at the United States, what concerns you . Well rose about the management of the economy. And is it mostly the political will to do things that many people know is necessary . I think i think its fair to say and i always hesitate to comment on other peoples politics but it is widely acknowledged i think here as well as in central banking circles that a series of decisions on the fiscal side, a series of shortterm steps and incentives rose as they say kicking the can down the road. But in the worst of all sense of the word because weve just gone through 2013, another disappointing year, as i said in my speech today, with huge fiscal drag, almost two Percentage Points of g. D. P. Rose yeah. That doesnt do anything to fix the longer term fiscal problems, entitlement and other problems in the United States. So you got a lot of the pain without any of the longterm gain. It will be less of that next year but still some big, tough decisions. So what concerns us the most is the system can create very difficult shortterm situations without the longerterm benefits. So last point, you can look at europe and, you know, extremely difficult situations in italy and spain and other places but in part occasioned by taking big tough longer term reforms. Thats a more realistic tradeoff. Rose what gives you pause . As a central banker whos looked at and know of the relationship between economies, what is it that worries mark carney . Well, i worry about a couple things and im paid to worry so ill step out from the u. K. Issues and look more broadly at your question. First thing, i worry about us finishing this Global Financial reform. And i worry about it. One i worry because of the risk that would still exist if we dont finish the job but secondly i worry in its absence well end up with a much more fragmented system on the financial side and that will lead to associated fragmentation with respect to Global Commerce and we will undo many of the benefits of globalization. So i i worry about that. I think the challenges the chinese authorities face are considerable. They are the product of tremendous success. They always were going to face these issues in terms of rebalancing the economy. But the getting the sequencing