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CrashConnoisseur

I E A: Property And Share Price Booms Are Caused By Loose Monetary Policy.

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'Property and Share Price Booms are Caused by Loose Monetary Policy' [september 2005]:

http://www.iea.org.uk/record.jsp?type=release&ID=94

In a groundbreaking study for the Institute of Economic Affairs, leading economist Tim Congdon argues that movements in the general level of asset prices (such as house prices and equity markets) are strongly influenced by the behaviour of the money supply.

[...snip...]

The study shows that the level of monetary growth is a key influence on asset price movements. These, in turn, have a powerful effect on incomes and expenditure and inflation.

It is currently fashionable to downplay the relationship between money and inflation and focus on the role that interest rates play in monetary policy. Congdon shows that this is misguided.

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Suggesting that a rapid increase in the money supply leads to higher inflation and asset bubbles is rather like discovering that the amount of water has a close correlation to flooding. The inflexible supply of housing thanks to the Soviet-era planning system acts as a huge bung (in more ways than one) and just completes this vicious circle, without any increase in supply the additional laxities in lending will simply inflate the existing stock as supply is essentially 'fixed'.

Edited by BuyingBear

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I don't even have an Economics degree but it is bloody obvious isn't it. Do people really get paid to churn out this tedium.

Let's have some f*****g action to sort the mess out that the loose money supply has caused.

Now that's a harder question - is anybody really addressing it ? NO. No-one serious is addressing the aftermath of a credit collapse except for the bears.

That's why being a bear is sensible and realistic, and being a bull is talking out of your backside.

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I don't even have an Economics degree but it is bloody obvious isn't it. Do people really get paid to churn out this tedium.

Making obvious linkages to the money supply is highly contentious and considered old school (of the Austrian variety), in some cases they have a point given the influence of China and the virtually unlimited supply of labour and production potential, they believe a relentless demand driven by cheap money will always be matched by an equally relentless increase in production thus eliminating inflation. However they utterly ignore the influence on scarce supplies, that's why we see huge price increases in oil, gold, raw materials, commodities and buildable land (artificial scarcity), these are naturally constrained and do not respond to textbooks.

New school economists also tend to confuse economies of scale with deflation, something that is, and always has been a natural process, this leads into hedonics where natural improvements in goods and services are deflated against some imaginary baseline, they should instead focus on productivity gains.

"Inflation is always and everywhere a monetary phenomenon." - Milton Friedman

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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