Mark Carney scared the crap out of me

Two days ago, the BoC governor spoke at the Economic Club of Canada (see here).  Several comments he made make me very nervous about the state of the world, or at the very least very nervous about the BoC’s world views.  Below are a few highlighted segments:

[…] by the recent extensions of unconventional monetary policies in the United States, Japan and Europe.

With currency tensions rising, some fear a repeat of the competitive devaluations […] countries left the gold standard in order to ease monetary policy, and the system became more flexible.  Today the process is working in reverse.

Ultimately, excessive [foreign currency] reserve accumulation will prove futile. Structural changes in the global economy will yield important adjustments in real exchange rates. If nominal exchange rates do not change, the adjustment will come through inflation in emerging economies and disinflation in major advanced economies.

Historically low policy rates, even if appropriate to achieve the inflation target, create their own risks. […] Canadian authorities will need to remain as vigilant as they have been in the past to the possibility of financial imbalances […].

First I should say that I largely agree with Carney’s world views.  I’m a little surprised how pessimistic his positions are with regards to the state of the world.  Foremost is Carney’s commentary about how Europe, America and Japan are all using unconventional (read: untested) policy tools.  Starting with America’s failed QE2 program: long term interest rates have actually risen back to their July 2010 level, to Europe which appears to confuse a solvency crisis with a liquidity crisis.  The BoC remarks that the insistence of all the players to maintain the status quo will lead to disinflation and deflation in the G7 counties and inflation in the surplus countries. 

Sounds familiar no?  China, India face rising inflation pressures, while America, Europe and Japan are facing disinflation, and deflation.