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By how much should the Bank of England increase interest rates in a traditional monetarist economy

sean99 said:
The real solution to UK house price inflation is to build a lot more housing in areas with high employment, but NIMBYism masquerading as environmentalism makes this very difficult.
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House prices and underemployment are consequences, not causes. We need to tackle the root causes, and that is political. It’s a political choice to assume that public spending is bad and needs to be cut as much as possible
 
sean99 said:
The real solution to UK house price inflation is to build a lot more housing in areas with high employment, but NIMBYism masquerading as environmentalism makes this very difficult.
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If you concrete over ‘nice’ areas, they won’t be nice any more. And yes, it’s environmentally disastrous. A reversion to mean for interest rates for a prolonged period will sort out house price inflation, unless wages are allowed to get out of control.
 
Ponty said:
If you concrete over ‘nice’ areas, they won’t be nice any more. And yes, it’s environmentally disastrous. A reversion to mean for interest rates for a prolonged period will sort out house price inflation, unless wages are allowed to get out of control.
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No. If house price inflation is the problem, those who have profited from that inflation should be targeted.
 
ks.234 said:
No. If house price inflation is the problem, those who have profited from that inflation should be targeted.
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Well, for people who sell and re buy, capital gains are largely irrelevant. It’s only real money if you have more than one and crystallise any on paper profit, which is then subject to CGT, so is very much targeted.
 
Ponty said:
Well, for people who sell and re buy, capital gains are largely irrelevant. It’s only real money if you have more than one and crystallise any on paper profit, which is then subject to CGT, so is very much targeted.
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I didn’t mention CGT. If house prices are the problem then there needs to be new mechanisms to drain the excess from those who profit. Raising interest rates will only benefit those already benefiting from house price inflation and make the problem worse.
 
ks.234 said:
I didn’t mention CGT. If house prices are the problem then there needs to be new mechanisms to drain the excess from those who profit. Raising interest rates will only benefit those already benefiting from house price inflation and make the problem worse.
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No it won’t because higher IR’s will lower house prices (for those who want to sell).
 
Ponty said:
No it won’t because higher IR’s will lower house prices (for those who want to sell).
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In theory perhaps. In practice House prices have risen steadily, that is, at a similar growth rate, since 1979 regardless of interest rates. Even a Global financial crisis only slowed that rate very briefly.

But the bottom line is that interest rate rises benefit the richer and hurt the poorer. The monetarist assumption that wage demands have caused our current inflation is false. Therefore the solution is false.
 
ks.234 said:
In theory perhaps. In practice House prices have risen steadily, that is, at a similar growth rate, since 1979 regardless of interest rates. Even a Global financial crisis only slowed that rate very briefly.

But the bottom line is that interest rate rises benefit the richer and hurt the poorer. The monetarist assumption that wage demands have caused our current inflation is false. Therefore the solution is false.
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No theory about it. An EA mate who I was speaking to earlier said a dithering client had to drop £500K to sell a house, and puts it purely down to IR rises. IR rises also make the rich poorer because their wealth is generally tied up in assets which fall in value. Don’t forget, after the GFC we had QE and ZIRP, no wonder house prices exploded over the following decade. Just as things were teetering, the covid response then supercharged the market again, the rest we know.
 
Ponty said:
No theory about it. An EA mate who I was speaking to earlier said a dithering client had to drop £500K to sell a house, and puts it purely down to IR rises. IR rises also make the rich poorer because their wealth is generally tied up in assets which fall in value. Don’t forget, after the GFC we had QE and ZIRP, no wonder house prices exploded over the following decade. Just as things were teetering, the covid response then supercharged the market again, the rest we know.
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House prices exploded in 1979 and continued on much the same trajectory after 2008. QE and Zirp has not had the effects you claim.
 
Ponty said:
If you concrete over ‘nice’ areas, they won’t be nice any more. And yes, it’s environmentally disastrous. A reversion to mean for interest rates for a prolonged period will sort out house price inflation, unless wages are allowed to get out of control.
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Interest rates are only part of the problem. The other, more serious part is that the combination of population growth and reduced household size means that the UK has not built a sufficient number of new homes for the past 30 years.
 
ks.234 said:
QE and Zirp has not had the effects you claim
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Oh yes it has! Why do you think simply giving your opinion would be convincing? Yes it does/no it doesn't. BTW there's enough obscure bullshit on the Interweb to support the daftest of arguments. 90% of this is supply and demand. Incompetence in the Government, short termism and a buffoon at the helm (or successive buffoons) of the BOE. Nuff said.
 
“ There is no separate ‘money’ channel that can unleash inflation”.

Last week, deputy governor Ben Broadbent said that the perceptions that QE leads to rapid growth in the money supply and excessive inflation “are not well supported by the evidence””

“The biggest criticism of QE is that it might cause rampant inflation,” says Tilley. But that doesn't always happen. For instance, inflation never materialized in the 2009-2015 period when the Fed implemented QE in response to the financial crisis”.
https://www.forbes.com/advisor/inve...ticism of QE,response to the financial crisis.

“Quantitative easing (QE) is one of the tools we use to meet our 2% inflation target. QE lowers long-term borrowing costs to support spending ...”
https://www.bankofengland.co.uk/monetary-policy/quantitative-easing

“The first reason, then, why QE did not lead to hyperinflation is because the state of the economy was already deflationary when it began.”
https://www.investopedia.com/articl...t-quantitative-easing-lead-hyperinflation.asp

etc, etc, etc
 
“The reliance on Bank of England rate rises alone can’t go on. In other countries, rent caps and excess profit taxes are working”.

Inflation currently is still far too high and the Bank of England has today increased rates again to 5.25% and lowered its growth forecast. But it doesn’t have to be like this. The case of Spain is a great counter-example. Its inflation has just fallen to the 2% target. How is it that it has already achieved this important milestone?

https://www.theguardian.com/comment...n-inflation-lower-bank-england-interest-rates
 
John Thomas said:
Oh yes it has!
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any actual evidence for your assertion?
Why do you think simply giving your opinion would be convincing?
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False. I have posted a great deal of evidence to support my argument. You have just posted opinion without evidence
Yes it does/no it doesn't. BTW there's enough obscure bullshit on the Interweb to support the daftest of arguments.
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Yet you can’t find any to support your arguments
90% of this is supply and demand.
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Nearer 100% I’d have thought. Supply and demand is the basis of modern economics. The problem is that monetarist thinking only sees demand side factors as the problem when it comes to inflation, and does not count supply side factors. Wage rises have accounted for about 10% of our current inflation (though in real terms wages have decreased) yet they are the only target of interest rate rises. Meanwhile the supply side is deemed to work its magic best when left free of intervention. The idea that we have a free market when one side, the demand side, is regulated while the other is subject only to an invisible hand, is conceptually flawed.
Incompetence in the Government, short termism and a buffoon at the helm (or successive buffoons) of the BOE. Nuff said.
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On this we agree, though if you do believe the BoE has been run by buffoons for years, I don’t understand why are you so supportive of their buffoonery?
 
Are businesses not consumers? Do interest rates not affect their ability to purchase? Doe this not affect supply?
 
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