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Winners & Losers 2010: The man with the plan – Mark Carney

How do we fix the global economy? Ask the hot-shot Canadian.

&#9650 The only thing a central banker can expect is uncertainty. So it was with considerable pluck that, in May 2008, the newly minted Bank of Canada governor volunteered to reporters his belief that the country would avoid a recession. “I’m confident,” Mark Carney said. “There are things both in the domestic economy and in the global economy that sustain the Canadian economy.” Wrong. But he was right about one thing: he was, and remains, the very picture of confidence. And despite having failed to predict the recession, he cut an impressive figure coping with it.

Halfway through his seven-year term, Carney has ensconced himself among the elite revising the rules of global finance. After being named one of the “fifty who will frame the way forward” by the Financial Times, in April Time placed him among the leaders “who most affect our world.” The youthful, cocksure former investment banker has proven the right man for the moment. Prior to his 2008 appointment, he spent 13 years working around the world for Goldman Sachs, then did a stint as a senior finance bureaucrat in Ottawa. “If you think about what was necessary over the last couple of years, it was somebody with market and international experience,” says former TD chief economist Don Drummond, now a consultant. “Inadvertently, he had trained his whole life for this job.”

Modern central bankers almost unanimously agree that their primary function is to keep consumer prices stable, avoiding the inflation that ravaged many countries a generation ago. Responding to a sagging economy, Carney slashed the bank’s crucial overnight rate to 0.25%, the lowest in its 75-year history. He also took the unprecedented step of telegraphing his intent to maintain low rates until the worst had passed. With Canada’s economy performing better than those of most developed nations, the bank was able to retreat somewhat from these extraordinary measures this year. After raising the overnight rate to a still rock-bottom 1%, Carney paused in October amid weak growth.

Carney’s unique merits and Canada’s new-found reputation for sound financial management coalesced to grant him greater leverage in international forums. This proved particularly true at the G20. And this summer, Carney received a three-year appointment as chair of the Committee on the Global Financial System, another assembly for central bankers. “When people want to know how a derivatives market works, or how hedge funds and newer, fancier stuff works, they tend to turn to Mark Carney,” says John Kirkton, co-director of the G20 Research Group at the University of Toronto. That’s given Canada a rare opportunity to mould global policy to its liking. Carney proposed radical reforms to combat systemic risk in the global financial system — many of which mimic what already exists in Canada. He also talked his peers back from a European proposal to charge a punitive levy against banks and other financial institutions.

Can Carney’s prestige last his entire term? Sentiment can reverse fast, as it did for the chairman of the U.S. Federal Reserve, Alan Greenspan. He was called “the Oracle” and “Maestro” until the U.S. housing collapse provoked a withering re-evaluation. The consequences of Carney’s own loose monetary policy have yet to play out, but his dilemma is similar. Like most central bankers, he almost myopically focuses on containing inflation. But experience reveals that stock and real estate manias, too, can be shockingly disruptive.

Carney’s not blind to the problem. His warnings about mounting household debt have become increasingly strident. And with Canada’s housing market calming for the moment, Carney seems on his way to earning his own moniker. At 45, he’s too young to be an oracle. The Prodigy, perhaps?