Mervyn King: Recovery still five years away

The Telegraph reported that Mervyn King warns

Britain is facing at least five more years of financial pain ... which pushed his earlier prediction for a full recovery back by three years, [reflecting] the scale of problems in the eurozone as well as his fears for the global economy. 

Addressing MPs at the Treasury Select Committee (TSC), Sir Mervyn said: “When this crisis began in 2007, most people did not believe we would still be here. I don’t think we’re yet half way through this. I’ve always said that and I’m still saying it. My estimate of how long it will take to recover is expanding all the time. 

“We have to regard this as a long-term project to get back to where we were, but we’re nowhere near starting that yet. We’re in a deep crisis with enormous challenges.” 

The Governor added that the Bank had not ruled out cutting rates from their current historic low of 0.5pc right down to zero, reflecting policies in countries like the US and Japan. “It may well be the case that if conditions in money markets and deposit rates change then we could well reduce it,” he said.

Regular readers are not surprised by Mr. King's statement as they reflect the simple reality of policymakers having chosen the Japanese model for handling a bank solvency led financial crisis.

By choosing to protect bank book capital levels and banker bonuses, the result is the burden of dealing with the excess debt in the financial system falls on the real economy.  This burden is more than the real economy can support and results in a downward economic contraction spiral.

You chose the Japanese model, you get the last 2+ decades of Japanese economic performance.