Open letter to the new governor!
Yes, we know you are inheriting a disaster economy to get onto a solid footing.
Don't drive the British economy into inefficiency by keeping interest rates low. That just leads to stupid investments!
Raise interest rates and stop the problem of artificial demand and another burst of bad loans! Steady earned growth is best.
The problem is that there is no middle interest rate between consumer loans of 20 percent plus and home loans of just around 5 percent. Savers don't see an incentive. Home sales don't really lead to generally higher real incomes. They follow, not lead!
Solid economies have 10-15 percent middle interest rate ground with consumer loans approaching home loans, and everyone encourage to allocate resources efficiently.
Britain does not have that.
Money supply growth does produce real growth. Employment in tested markets does. Low interest rtes mean waste waste waste and the Japanese economy problems. Artificially stimulating growth through pushing money at people is a recipe for disaster.
Yes! What happens is lenders rather than buyers drive the market. As long as the lenders cannot earn a decent rate of interest, they push stupid loans and buyers are forced to accept ridiculous loans and terms. Rather than keeping house prices down, the surge up is due to too much money chasing to little interest.
Push interest rates up. The house market solution to growth is well overspent. Let the house market grow against higher interest rates that will strengthen the economy rather than weaken it!
That is the only only solution and only way to avoid a crash later on.
There is no solid demand just too many lenders pushing more money towards buyers than they should!
It's not that buyers should not have money, but there is absolutely no discipline in the market at present and the spectre of lenders greed for long term interest runs rampant! Give it to them by raising rates, please, please!
Sensible balance sheet management rules!