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DerekD

This 'printing Money' Thing.....

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There's a lot of reference on this forum to G.Brown printing money like its going out of fashion. It conjures up images of him sat in number 10 pushing a red button on his BIG money making machine, out of which spills endless £20 notes.

OK i realise it is the BoE/Royal Mint that creates physical money, but what i dont understand is how it relates to the common man.

In my (admittedly limited) brain, i can only see 2 reasons for HPI:

1) People have more money to spend on houses

2) People are able and willing to obtain more debt to spend on houses

As far as the reports go, 1) isnt happening through wage inflation and 2) is finally being curbed as a result of the subprime/credit fiasco we are currently witnessing. The only thing i can think of is that 1) is occurring more through the inheritance of deceased relatives property (HPI fueling HPI if you will), though im not sure to what extent ths has an impact.

Therefore, to cut a long story short - when people talk about Brown/BoE printing more and more money ---> WHO is actually getting it? Are we talking about physical money or debt?

Cheers

D

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HPC'ers believe there will be a crash. In this they are correct.

Many seem to believe HPI has arisen solely because of Gordon Brown. In this they are idiots.

Brown has no influence on liquidity or the global market place.

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Therefore, to cut a long story short - when people talk about Brown/BoE printing more and more money ---> WHO is actually getting it? Are we talking about physical money or debt?

.....homeowners are 'buying' debt from the banks and exchanging the debt for houses.

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Many seem to believe HPI has arisen solely because of Gordon Brown. In this they are idiots.

It has arisen partly because of Gordon Brown.

Brown has no influence on liquidity or the global market place.

He has some influence over liquidity, as he ultimately controls the amount of sterling which gets printed. He also has influence over the way in and extent to which goods and services are taxed. Part of the reason why HPs went into orbit at the start of the century was that his tax raid on pensions made these unattractive to the private investor, and that was followed by the dot-com bust which did the same thing to equity-based investments. That only left property, and from there on in the lax credit controls and skyrocketing money supply did the rest.

Brown made the same mistakes as many other countries' economic decision makers, but they were his mistakes nonetheless.

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HPC'ers believe there will be a crash. In this they are correct.

Many seem to believe HPI has arisen solely because of Gordon Brown. In this they are idiots.

Brown has no influence on liquidity or the global market place.

No but he was the Chancellor of the Exchequor during this period.

He doesn't print money but he lets others (private banks) you will notice that the currency we use has the queens head on it and he was part of her majestys govt it is not his fault but he let it happen.

Why do people have to be IDIOTS because they hold a different opinion to you?

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Guest vicmac64
HPC'ers believe there will be a crash. In this they are correct.

Many seem to believe HPI has arisen solely because of Gordon Brown. In this they are idiots.

Brown has no influence on liquidity or the global market place.

how so ? Brown borrows to pay civil servants this feeds in as extra capital in the system, Brown has undertaken massive spening across the UK, Brown refuses to control the lending markets - he is the Prime Minister so inaction is just the same as action - Brown as the head of the economy is culpable for the mess we are in.

Remember once money is created (whether it be to fund hospitals or civil servants - or as mortgaged debt) it enters the system as new money - hence inflation is created. All this money sloshing about has created inflation and as a consequence has caused HPI.

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There's a lot of reference on this forum to G.Brown printing money like its going out of fashion. It conjures up images of him sat in number 10 pushing a red button on his BIG money making machine, out of which spills endless £20 notes.

Therefore, to cut a long story short - when people talk about Brown/BoE printing more and more money ---> WHO is actually getting it? Are we talking about physical money or debt?

I'm not surprised you are confused - most of the comment surrounding money supply and inflation is opaque, misinformed, and/or just wrong.

Firstly - Gordon Brown is not directly responsible for any changes in the money supply. That is the remit of the Bank of England, which the government (sensibly) made independent in 1997. The government implements "fiscal policy" - that is, how much the government spends, taxes, and borrows at any given time. The Bank of England implements "monetary policy" - which basically means setting interest rates. So if anyone is "printing money", it's Mervyn King, the governor of the Bank.

So far, so good. But is anyone really printing money? And if so, who? To answer those questions, we have to understand a little more about what money is in the modern world, and where it comes from.

The UK, like almost all modern economies, operates a system of fractional reserve banking. It's worth reading up on this if you have never come across it before. The basic premise is simple: banks do not need to have enough physical money to allow all their customers to withdraw it all at once. Imagine a high-street bank with 1000 customers, each of whom has £1000 in their account. The bank's liabilities in this case amount to £1M. But that doesn't mean that the bank has £1M of physical currency in its vaults, waiting to be paid out. It doesn't need to! It is unlikely ever to be asked for £1000 by all 1000 customers at once. So how much can it get by with? £100K? Probably a bit less. £10K? Probably a bit more. In fact the reserve ratios maintained by modern banks are something like 2%-4% of liabilities.

Now we have to turn the equation on its head. Let's say that the reserve ratio is 10%, to keep the maths simple. In this case, if £100K of physical money is deposited in banks, then the banking system can create what looks like £1M of deposits for its customers. Yes, effectively out of thin air. So there is much more money in existence (i.e. if you just added up all the bank accounts in the country) than there is physical currency. The opposite of the reserve ratio is the "money multiplier": the amount by which the banking system multiplies up the amount of physical currency to give the amount of spendable money in the economy.

Some terminology, then: the physical money created by the Bank of England in the form of banknotes is "narrow" or "high-powered" money; the notional deposits that are created against this narrow money stock are known collectively as "broad" money. In national accounting and economic analyses, narrow money is given the name M0 and board money is called M4.

Now, you'll have to appreciate I've glossed over a lot of stuff here. Not all narrow money is just physical currency - some of it is held by banks as special deposits at the Bank of England. And obviously not all physical money lives in bank vaults - some of it is in our wallets. But the key message is that the Bank of England creates narrow money, and the banks (and building societies, and other financial corporations that are often refered to as "the credit channel") multiply this up to give broad money.

It may or may not surprise you to learn that the amount of broad money in the economy is not constant. Not at all. You may have heard news recently about how "money supply growth is high" - but that doesn't usually mean much to most people, so you'd be forgiven for just ignoring it. But it's important. The annual growth of M4 (broad) money has been in double digits for several years now. That is, the quantity of spendable money in the economy has been rising very fast - faster than reported CPI inflation, certainly. But here's the thing - the growth of M0 money (as "printed" by the Bank of England) has not been so robust. In fact, it has been in low single figures for the last decade.

So, logically: the reason that the money supply is expanding so fast is nothing to do with printing presses: it is simply that the money multiplier is growing. I say "simply"... but why might this happen? Well, one reason is banks holding fewer reserves. Another is people holding less cash themselves. Economist might talk of a change in the "velocity of circulation" of money - if a given unit of money "works" less hard, then you need more money to do the same amount of work. Either way, it's pretty much the same thing.

This means it's not the government's fault, right? All the extra money is coming from the expansion of credit, and not from the Bank of England. Well, that is true, but the government could still impose stricter regulation on lending in order to prevent it from happening. Why don't they? Because they naively believe that the banking system will just "do the right thing" if left to its own devices. And the Bank of England's economists do not believe that a high rate of money supply growth is necessarily inflationary. Therefore they have done little to intervene.

Is money supply growth a big problem? It can be. If the economy is not growing as fast as the money supply, then there is effectively "too much money chasing too few goods", which drives up prices and thus leads to inflation. Subscribers to the "monetarist" school of economics believe that this is virtually the only significant cause of inflation; to them, growth in M4 is inflation. But this view is not as widely held as it used to be.

As to the question of where this money actually goes - well, it goes to anyone who asks for it! Want a low-cost any-purpose loan of £5,000 to £25,000 at your convenience? That is money, right there. Yes, it's debt. It's the same thing. You can spend it just like it's money you earned and saved. Just one difference - it needs paying back eventually.

The UK's £1,350,000,000,000 debt mountain is no less than a huge pile of IOU slips to our banks, promising that we will work harder tomorrow in order to pay them back. And far, far too many of us have grown up believing that tomorrow never comes.

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Lots of people feel the need to blame someone because they can't afford the house of their dreams, so they pick on Gordie because he's Scottish, blind in one eye, and bites his nails.

Actually blaming anyone for HPI is like blaming the car in front when you're stuck in a traffic jam, if you're there at all then you're really part of the problem too.

The simple fact is that the British public will do whatever possible to live in a house slightly better than their friends and relatives. With post big-bang easy credit they've gone into debt trying to achieve this, prior to big bang they were busy sending their wives out to work to achieve the same ends.

Of course they've failed because all their friends and relatives are equally in debt and have also sent their wives out to work, so there's been no relative advantage at the end of it, they've just ended up in the same house but with bigger debts and unruly children.

The other main bogey men are the BTL landlord, who are a bit like the jews in 1930's Germany, indeed there's many on this forum who would happily endorse a similar solution. But here too the forum's anger is misdirected. BTL landlords break no laws and are simply trying to follow their genetic programming which is ironically identical to the rest of us, ie get a slightly bigger house than those of your friends and relatives.

The sad truth in all of this, which has been obvious to economists like Paul Krugman for years, is that most of us are actually getting poorer and have been doing so since the 1980's. There's now a shrinking pool of winners in the new "winner takes all" economy, so most of us will be worse off than our parents (no secure pension, a single breadwinner can't support a family, falling levels of owner occupancy), and even more disturbingly our children will be even worse off than us (all the previous problems plus unaffordable education, higher taxes to fund state pensions, and falling job security).

Consequently all this anger and frustration needs to be targetted at someone...anyone...a scapegoat.

It could be Gordon, or BTL landlords, or Polish immigrants, or single mothers, or estate agents. But actually it's us that are to blame, us and our collective craving for that oh so marginally better house than our friends and relatives

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Lots of people feel the need to blame someone because they can't afford the house of their dreams, so they pick on Gordie because he's Scottish, blind in one eye, and bites his nails.

Actually blaming anyone for HPI is like blaming the car in front when you're stuck in a traffic jam, if you're there at all then you're really part of the problem too.

The simple fact is that the British public will do whatever possible to live in a house slightly better than their friends and relatives. With post big-bang easy credit they've gone into debt trying to achieve this, prior to big bang they were busy sending their wives out to work to achieve the same ends.

Of course they've failed because all their friends and relatives are equally in debt and have also sent their wives out to work, so there's been no relative advantage at the end of it, they've just ended up in the same house but with bigger debts and unruly children.

The other main bogey men are the BTL landlord, who are a bit like the jews in 1930's Germany, indeed there's many on this forum who would happily endorse a similar solution. But here too the forum's anger is misdirected. BTL landlords break no laws and are simply trying to follow their genetic programming which is ironically identical to the rest of us, ie get a slightly bigger house than those of your friends and relatives.

The sad truth in all of this, which has been obvious to economists like Paul Krugman for years, is that most of us are actually getting poorer and have been doing so since the 1980's. There's now a shrinking pool of winners in the new "winner takes all" economy, so most of us will be worse off than our parents (no secure pension, a single breadwinner can't support a family, falling levels of owner occupancy), and even more disturbingly our children will be even worse off than us (all the previous problems plus unaffordable education, higher taxes to fund state pensions, and falling job security).

Consequently all this anger and frustration needs to be targetted at someone...anyone...a scapegoat.

It could be Gordon, or BTL landlords, or Polish immigrants, or single mothers, or estate agents. But actually it's us that are to blame, us and our collective craving for that oh so marginally better house than our friends and relatives

Pretty much spot on. The government has to take some responsibility but so do we for electing them. Our political system has a lot to do with it IMHO. Frankly it is a scandal that the government has borrowed from future generations to pay for our lifestyle. The budget should balance - if it doesn't then they we spend less. It's that simple. How can we change this sad sorry state of affairs to ensure our children will be better off?

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Pretty much spot on. The government has to take some responsibility but so do we for electing them. Our political system has a lot to do with it IMHO. Frankly it is a scandal that the government has borrowed from future generations to pay for our lifestyle. The budget should balance - if it doesn't then they we spend less. It's that simple. How can we change this sad sorry state of affairs to ensure our children will be better off?

You ask the right question, I wish I knew but I don't.

The best solution I've seen comes from an American economist called Robert Franks, he's alarmed by declining western living standards and the "arms race" of consumer spending where every year we spend more and more on constantly updated items but never get any happier (he gives a very funny account of how much barbeques have increased over the years but the sausages never taste any better!).

His solution is a little technical but basically it involves switching taxation to be purely spending based. In other words your pay is tax free, as long as you save it all! For say the first £5k you spend each year there's no tax, the next £5k you spend attracts 10% tax, and so on up to very high marginal tax rates of 70% or more.

It's a system that's not quite as wacky as it sounds, it gets trotted out as a solution during every major war when governments desperately need to encourage saving. It certainly would dramatically promote saving (great for securing our pensions and investing in manufacturing productivity so we can challenge Asian businesses), but from an economics standpoint it may trigger a deflationary recession while it was introduced, and Franks and other economists who advocate "spending taxation" systems have never really answered this challenge.

So, unfortunately, I'm as stumped as you are, but I'll try and avoid the blame game while I keep thinking!

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The best solution I've seen comes from an American economist called Robert Franks, he's alarmed by declining western living standards and the "arms race" of consumer spending where every year we spend more and more on constantly updated items but never get any happier (he gives a very funny account of how much barbeques have increased over the years but the sausages never taste any better!).

His solution is a little technical but basically it involves switching taxation to be purely spending based. In other words your pay is tax free, as long as you save it all! For say the first £5k you spend each year there's no tax, the next £5k you spend attracts 10% tax, and so on up to very high marginal tax rates of 70% or more.

This system of taxation that is described by this economist is actually, except for some slight differences, what is constitutionally called for anyway, i.e. that there should be no taxes on ordinary income earned through employment. The current federal income tax is illegal in the eyes of the US constitution. Please watch the video in my signature, America Freedom to Fascism by the late Aaron Russo for more information

Best,

L

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You ask the right question, I wish I knew but I don't.

The best solution I've seen comes from an American economist called Robert Franks, he's alarmed by declining western living standards and the "arms race" of consumer spending where every year we spend more and more on constantly updated items but never get any happier (he gives a very funny account of how much barbeques have increased over the years but the sausages never taste any better!).

His solution is a little technical but basically it involves switching taxation to be purely spending based. In other words your pay is tax free, as long as you save it all! For say the first £5k you spend each year there's no tax, the next £5k you spend attracts 10% tax, and so on up to very high marginal tax rates of 70% or more.

It's a system that's not quite as wacky as it sounds, it gets trotted out as a solution during every major war when governments desperately need to encourage saving. It certainly would dramatically promote saving (great for securing our pensions and investing in manufacturing productivity so we can challenge Asian businesses), but from an economics standpoint it may trigger a deflationary recession while it was introduced, and Franks and other economists who advocate "spending taxation" systems have never really answered this challenge.

So, unfortunately, I'm as stumped as you are, but I'll try and avoid the blame game while I keep thinking!

The arms race analogy is a good one in regards to ever increasing levels of borrowing to obtain the same grotty ex-council semi. And like the arms race it's insane.

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There's a lot of reference on this forum to G.Brown printing money like its going out of fashion. It conjures up images of him sat in number 10 pushing a red button on his BIG money making machine, out of which spills endless £20 notes.

OK i realise it is the BoE/Royal Mint that creates physical money, but what i dont understand is how it relates to the common man.

In my (admittedly limited) brain, i can only see 2 reasons for HPI:

1) People have more money to spend on houses

2) People are able and willing to obtain more debt to spend on houses

As far as the reports go, 1) isnt happening through wage inflation and 2) is finally being curbed as a result of the subprime/credit fiasco we are currently witnessing. The only thing i can think of is that 1) is occurring more through the inheritance of deceased relatives property (HPI fueling HPI if you will), though im not sure to what extent ths has an impact.

Therefore, to cut a long story short - when people talk about Brown/BoE printing more and more money ---> WHO is actually getting it? Are we talking about physical money or debt?

Cheers

D

Nope!!! this is the trick.

We are talking about NOTIONAL money in the system....it's NOT real until somebody actually does the deal and banks hard cash.

It's all well and good saying "my house is worth x amount more than last year",but that figure is arbitrary.

At least merv had the balls to say it...."debt is real,yet house prices are a matter of opinion"

.....fair play to the guy,he's been as truthful as he could be allowed to be.

the masses have seen it differently,and if the BoE has REAL balls,should be made to pay the penalty PROPERLY...none of this bailing out stuff.....if you take a risk with a gamble/investment/speculation then you do so in full knowledge the bet may not pay off and you lose the money.......just like putting a tenner on some donkey in the Grand National.

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I'm not surprised you are confused - most of the comment surrounding money supply and inflation is opaque, misinformed, and/or just wrong.

Firstly - Gordon Brown is not directly responsible for any changes in the money supply. That is the remit of the Bank of England, which the government (sensibly) made independent in 1997. The government implements "fiscal policy" - that is, how much the government spends, taxes, and borrows at any given time. The Bank of England implements "monetary policy" - which basically means setting interest rates. So if anyone is "printing money", it's Mervyn King, the governor of the Bank.

So far, so good. But is anyone really printing money? And if so, who? To answer those questions, we have to understand a little more about what money is in the modern world, and where it comes from.

The UK, like almost all modern economies, operates a system of fractional reserve banking. It's worth reading up on this if you have never come across it before. The basic premise is simple: banks do not need to have enough physical money to allow all their customers to withdraw it all at once. Imagine a high-street bank with 1000 customers, each of whom has £1000 in their account. The bank's liabilities in this case amount to £1M. But that doesn't mean that the bank has £1M of physical currency in its vaults, waiting to be paid out. It doesn't need to! It is unlikely ever to be asked for £1000 by all 1000 customers at once. So how much can it get by with? £100K? Probably a bit less. £10K? Probably a bit more. In fact the reserve ratios maintained by modern banks are something like 2%-4% of liabilities.

Now we have to turn the equation on its head. Let's say that the reserve ratio is 10%, to keep the maths simple. In this case, if £100K of physical money is deposited in banks, then the banking system can create what looks like £1M of deposits for its customers. Yes, effectively out of thin air. So there is much more money in existence (i.e. if you just added up all the bank accounts in the country) than there is physical currency. The opposite of the reserve ratio is the "money multiplier": the amount by which the banking system multiplies up the amount of physical currency to give the amount of spendable money in the economy.

Some terminology, then: the physical money created by the Bank of England in the form of banknotes is "narrow" or "high-powered" money; the notional deposits that are created against this narrow money stock are known collectively as "broad" money. In national accounting and economic analyses, narrow money is given the name M0 and board money is called M4.

Now, you'll have to appreciate I've glossed over a lot of stuff here. Not all narrow money is just physical currency - some of it is held by banks as special deposits at the Bank of England. And obviously not all physical money lives in bank vaults - some of it is in our wallets. But the key message is that the Bank of England creates narrow money, and the banks (and building societies, and other financial corporations that are often refered to as "the credit channel") multiply this up to give broad money.

It may or may not surprise you to learn that the amount of broad money in the economy is not constant. Not at all. You may have heard news recently about how "money supply growth is high" - but that doesn't usually mean much to most people, so you'd be forgiven for just ignoring it. But it's important. The annual growth of M4 (broad) money has been in double digits for several years now. That is, the quantity of spendable money in the economy has been rising very fast - faster than reported CPI inflation, certainly. But here's the thing - the growth of M0 money (as "printed" by the Bank of England) has not been so robust. In fact, it has been in low single figures for the last decade.

So, logically: the reason that the money supply is expanding so fast is nothing to do with printing presses: it is simply that the money multiplier is growing. I say "simply"... but why might this happen? Well, one reason is banks holding fewer reserves. Another is people holding less cash themselves. Economist might talk of a change in the "velocity of circulation" of money - if a given unit of money "works" less hard, then you need more money to do the same amount of work. Either way, it's pretty much the same thing.

This means it's not the government's fault, right? All the extra money is coming from the expansion of credit, and not from the Bank of England. Well, that is true, but the government could still impose stricter regulation on lending in order to prevent it from happening. Why don't they? Because they naively believe that the banking system will just "do the right thing" if left to its own devices. And the Bank of England's economists do not believe that a high rate of money supply growth is necessarily inflationary. Therefore they have done little to intervene.

Is money supply growth a big problem? It can be. If the economy is not growing as fast as the money supply, then there is effectively "too much money chasing too few goods", which drives up prices and thus leads to inflation. Subscribers to the "monetarist" school of economics believe that this is virtually the only significant cause of inflation; to them, growth in M4 is inflation. But this view is not as widely held as it used to be.

As to the question of where this money actually goes - well, it goes to anyone who asks for it! Want a low-cost any-purpose loan of £5,000 to £25,000 at your convenience? That is money, right there. Yes, it's debt. It's the same thing. You can spend it just like it's money you earned and saved. Just one difference - it needs paying back eventually.

The UK's £1,350,000,000,000 debt mountain is no less than a huge pile of IOU slips to our banks, promising that we will work harder tomorrow in order to pay them back. And far, far too many of us have grown up believing that tomorrow never comes.

Cracking post mate, thanks for taking the time to answer.

I think the Government can have little impact in international banking system. Until there is some form of world government, this will always be the case.

Stepping out of this shell game would intrinsically change our economy, if not our culture. It's a big ask for anyone to stick their head in that lions mouth.

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Lots of people feel the need to blame someone because they can't afford the house of their dreams, so they pick on Gordie because he's Scottish, blind in one eye, and bites his nails.

Actually blaming anyone for HPI is like blaming the car in front when you're stuck in a traffic jam, if you're there at all then you're really part of the problem too.

The simple fact is that the British public will do whatever possible to live in a house slightly better than their friends and relatives. With post big-bang easy credit they've gone into debt trying to achieve this, prior to big bang they were busy sending their wives out to work to achieve the same ends.

Of course they've failed because all their friends and relatives are equally in debt and have also sent their wives out to work, so there's been no relative advantage at the end of it, they've just ended up in the same house but with bigger debts and unruly children.

The other main bogey men are the BTL landlord, who are a bit like the jews in 1930's Germany, indeed there's many on this forum who would happily endorse a similar solution. But here too the forum's anger is misdirected. BTL landlords break no laws and are simply trying to follow their genetic programming which is ironically identical to the rest of us, ie get a slightly bigger house than those of your friends and relatives.

The sad truth in all of this, which has been obvious to economists like Paul Krugman for years, is that most of us are actually getting poorer and have been doing so since the 1980's. There's now a shrinking pool of winners in the new "winner takes all" economy, so most of us will be worse off than our parents (no secure pension, a single breadwinner can't support a family, falling levels of owner occupancy), and even more disturbingly our children will be even worse off than us (all the previous problems plus unaffordable education, higher taxes to fund state pensions, and falling job security).

Consequently all this anger and frustration needs to be targetted at someone...anyone...a scapegoat.

It could be Gordon, or BTL landlords, or Polish immigrants, or single mothers, or estate agents. But actually it's us that are to blame, us and our collective craving for that oh so marginally better house than our friends and relatives

Yeah. If its not Gordon its supply and demand. Lets face it, most people don't have a clue about how the wider world operates.

I barely understand the international markets myself. There probably isn't one answer to this question, but by and large the larges issue has been liquidity.

Thanks for taking the time surfer dude.

Edited by geneer

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No but he was the Chancellor of the Exchequor during this period.

He doesn't print money but he lets others (private banks) you will notice that the currency we use has the queens head on it and he was part of her majestys govt it is not his fault but he let it happen.

Why do people have to be IDIOTS because they hold a different opinion to you?

Sorry gravity, Im a blunt instrument at best. I'll rephrase that to misguided.

Let me frame the question another way: What, realistically could gordon have done to stop HPI?

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Sorry gravity, Im a blunt instrument at best. I'll rephrase that to misguided.

Let me frame the question another way: What, realistically could gordon have done to stop HPI?

That's a helluva question!

Let's assume that he wants to stop HPI, that it's in his remit to stop HPI, or that HPI is politically damaging (none of which are proven or clear). Well he could do two things that I believe he's doing right now.

1. Freeing up planning regulations to allow more houses to be built. Bit of a minefield this one, there's plenty of people on this forum who'll argue convincingly that there's no supply problem in British housing. They'll point to the fact that if supply was an issue rents would be increasing (they're not), or that countries with far more space than us have seen HPI (ie Australia) and countries just as crowded as ours are seeing property deflation (ie Japan). But for me one of the neatest arguments is that house builders are already sitting on huge unused landbanks and that there's actually plenty of vacant properties. So how can increasing the supply of land reduce house prices? From a personal perspective easier planning laws would make a difference, I've had houses built for me before, so if I could find the right half acre plot in Devon or Dorset at the right price then I'd be quite prepared to have a house built again. But I'm one person, not the country.

2. Gordon's just commisioned an enquiry into buy to let. Personally I think BTL is similar to the MIRAS tax issue in the last boom and bust, there was a huge surge into housing last time around to beat the MIRAS tax deadline, which drove up prices, then 15% interest rates brought the whole house of cards down again. This time there's 940,000 BTL mortgages out there, most taken out in the last five years. And the credit squeeze will shake out that tree. But Gordon's going one step further. He knows that for most of the voters HPI is a good thing (misguidedly in my view, but I think that the average bloke in the pub is actually delighted with HPI), so he can't be seen to directly initiate a crash. However BTL landlords aren't getting such a good press, they're seen as the villains that are squeezing out first time buyers. So he could target them with more stringent taxation and tougher disclosure regulations. Because BTL represents roughly half of the demand for property, anything that turns BTL from net buyers of property into net sellers would have a dramatic effect.

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Sorry gravity, Im a blunt instrument at best. I'll rephrase that to misguided.

Let me frame the question another way: What, realistically could gordon have done to stop HPI?

There are a wide range of measures he could have implemented.

I think the most effective thing would have been to regulate the mortgage market to limit lending.

Impose a capital gains tax on the profits from house sales.

Switch from an income tax to a property tax.

Impose higher taxes on second homes or ban them outright.

Ban the sale of property to foreign nationals.

Collate and enforce a sensible immigration policy.

Redress the balance between tennants and landlords.

Provide more funding for councils to implement the policy of getting empty properties back into use.

Make it easier for individual homebuilders to obtain planning permission.

Ban the hoarding of land in Landbanks by development companies.

There's loads of things he could have done.

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The sad truth in all of this, which has been obvious to economists like Paul Krugman for years, is that most of us are actually getting poorer and have been doing so since the 1980's. There's now a shrinking pool of winners in the new "winner takes all" economy, so most of us will be worse off than our parents (no secure pension, a single breadwinner can't support a family, falling levels of owner occupancy), and even more disturbingly our children will be even worse off than us (all the previous problems plus unaffordable education, higher taxes to fund state pensions, and falling job security).

Consequently all this anger and frustration needs to be targetted at someone...anyone...a scapegoat.

It could be Gordon, or BTL landlords, or Polish immigrants, or single mothers, or estate agents. But actually it's us that are to blame, us and our collective craving for that oh so marginally better house than our friends and relatives

So why did we all suddenly start getting poorer in the 1980s ?

Actually I do not think the great unwashed are responsible for HPI. They simply want the biggest and best property they can buy. There is nothing new about that phenomenon. People would have based their purchasing decisions on exactly the same requirement in the past. What has changed is the amount of credit available that has allowed them to bid up prices. This phenomenon is a direct result of Central Bank policies and indirectly a consequence of decisions made by politicians in removing credit controls over the last three decades. Gordon Brown may not have started this process but he sure as hell has done nothing to discourage it. Since he has been elected to look after our best interests I do hold him culpable.

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I'm not surprised you are confused - most of the comment surrounding money supply and inflation is opaque, misinformed, and/or just wrong.

Firstly - Gordon Brown is not directly responsible for any changes in the money supply. That is the remit of the Bank of England, which the government (sensibly) made independent in 1997.

What I would like to ascertain,is:

independent from whom?????

the BoE was property of the crown..in short..the queen..and by definition..the country and it's people.

if you think it's independent of meddling politicians...think again.

The "independence" of the BoE needs to be looked into more closely,to find out who is pulling the strings.

..lets face it,if gordo makes a ****-up of selling off the gold at knockdown prices he's bound to have made a pig's ear of anything else we had in the way of financial assets.

...in his own words,"he was never any good at maths"

...fine you're good at history mate.....just consign yourself to it....NOW,before you **** up anything else.

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guys - thanks for all the replies, especially beni and silver surfer, 2 cracking posts.

the amount of knowledge on here is phenomenal if you can cut through half of the guff.

anyway, im off to try and figure out this money multiplier business!

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guys - thanks for all the replies, especially beni and silver surfer, 2 cracking posts.

the amount of knowledge on here is phenomenal if you can cut through half of the guff.

anyway, im off to try and figure out this money multiplier business!

Hi Derek,

This subject is one which has regularly come up on HPC, and one way to get yourself up to speed on how monetary systems/central banking work is to read Murray N. Rothbard's "The Mystery of Banking". Fortunately this is now available as a PDF on the Web, and I can't recommend it highly enough for the clarity of the explanations as to how fractional reserve banking came about, the mechanics of FRB, and the potential abuses inherent in the form that's practised today.

The Mystery of Banking

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So why did we all suddenly start getting poorer in the 1980s ?

Because productivity growth began to flatten.

The change in how we lived our lives between 1947 and 1977 was substantially greater than the change between 1977 and 2007. We like to believe we're being propelled along by a technological revolution, but the facts simply don't support that view. In reality Bill Gates was no Henry Ford (and actually Henry Ford was no Isambard Kingdom Brunel, but that's another story!).

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