Martin Sandburg wrote this in the FT yesterday:
in an orderly Brexit, the BoE, facing a high employment rate and probably a boost to growth as well as financial market optimism, would be free to raise interest rates as it sees fit to offset any fiscal expansion that went beyond what the economy could absorb – in turn making a fiscal expansion safer.
So there we have it: the reward for many households from taking back control is that the cost of their mortgages might rise.
People really did vote to be worse off.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Oh! What! Richard you are unceremoniously accepting [theoretically] that Brexit will boost the economy and then trying to reap benefit [theoretically] for your Europhile anti-Brexit dogma!
I am accepting some certainty will boost the economy
Not the same thing at all
Please get it right
Whilst Certainty is clearly beneficial it will only have major impact in boosting the market if it emerges as the factor that didn’t have a negative impetus. On the other hand a factor that materialises as beneficial that was previously perceived as detrimental will have a huge impact.
Clarity is also useful
What are you trying to say?
“offset any fiscal expansion that went beyond what the economy could absorb”
What’s wrong with the possibility of raising interest to counter inflation? You would tax.
But tax is targetted at those who can pay
Interest does the exact opposite
You are wrong. Mortgage = house owners = the tax base.
Zero or low interest rates doesn’t allocate capital efficiently and throws in moral hazard
You clearly do not understand what the tax base is
Colin says:
“You are wrong. Mortgage = house owners = the tax base.
Zero or low interest rates doesn’t allocate capital efficiently and throws in moral hazard”
Oh! Colin. You’re so sweet. Now go back to Facebook and play nicely. 🙂
Richard
Given that, as you quote, any rise in mortgage interest rates will have been triggered by a high employment rate, alongside a boost to growth, then it turns out that we will have voted to make ourselves richer.
In fact, that would have nothing to do with Brexit as such. Any time the economy is powering ahead, then interest rates will rise, and vice versa.
No….
That is not the way things are now
Read some MMT
And note that the Phillips Curve no longe works
You are simply quoting dogma, not fact
‘Mortgage = house owners = the tax base’.
Colin = Wrong.
The tax base is ANYONE with money to spend – VAT? Wages? Rich or poor. Mortgaged or renting. Transactions/purchases?
Is that understood?
Now start again.
What was your point?
Draw a Venn diagram.. overlap between property owners and the tax take will be huge..
How patronising can you get?
And what is your reason for ignoring all those who are not property owners?
You’d like to take us back to the pre-1918 franchise?
Colin
I’ve drawn the Venn diagram.
Conceptually you’re being a bit weird. All I can see is that there needs to be more circles to represent other tax streams. A Venn diagram represents dynamic relationships between variable inputs.
You diagram is just made up of home owners.
I’m sorry but it does not represent reality. You diagram however reveals a lot about you. But that’s OK.
🙂
Again
So lets look at this rationally.
Yes certainty would release pent up frustration and demand and in particular the the massive swing item of SME borrowing at they buy the equipment etc to fill up the gap in supply left by the EU. There will be a delay in delivery etc say a minimum of 2 weeks to 3 months. However after the blitz of 27 EU actions and the striking French workers a war mentality is likely to set in after 1 month at the injustice of the situation. That will be confidence neutral but at least there will more time and headspace without the Brexit chat dominating the airwaves and conversations.
There are still the hard drivers of MMT like effects – landlord renovations, car standards changes and upgrades, housing permissions to build new high rise homes regardless.
Against there is what happens to the working population and their spare capacity – do 2million EU citizens leave – a short boost to economy by movement (redecoration, fees, movers etc) and loss of some tax after 2-3months of missed taxed employment.
The Housing market is stretched in a working persons ability to buy using normal (historic based on earnings) lending criteria and is falling and I see no fundamentals to boost lending power from wages rising or interest rates lowering as they are so low. Do the banks take the hit of losses or continue in a ‘Spank the Banker’ type movie to hound and undermine individuals.
Although the headline rate of employment due to technical statistics and population growth is very high that doesn’t show up in confidence/wages so there must be spare capacity. Offset that with solid investment in new manufacturing equipment, Artifcial intelligence that eliminates paying jobs – lots of sectors are affected and bank lending or state lending is required which is post Brexit freely available.
Your logic Richard may be emotionally charged as with a knocked down stockmarket with good reason, yet we have high prices on bonds, high housing prices and large amounts of cash on balance sheets. Raising interest rates soon would be only to sabotage the economy and undermine lending disposable income for a change in vote. If reported inflation from imported inflation rises then interest rates are not going to rise as the UK cannot buck the exchange rate without damaging exchange rate controls. The high geared economy has become settled around low interest rates so needs a gradual adjustment with a growing economy. So from my assessment only political pressure is going to raise interest rates against a tide of ever lowering goods, tech advances and the state of borrowers and bankers. I may be wrong yet thats my reasoning
I confess I lost your logic on the way through that and gave up on it
I am sure there is a logic but you were hiding it well
Hold on, what nonsense is this? Had the vote been 52/48 t’other way, we’d be staying in the EU with even more certainty (as perceived by market participants including yourself, if not in reality) and the FT story would have been:
“Certainty over EU Membership will lead to higher borrowing costs”.
Would your comment then have been that people voted to be worse off? Logical consistency please Richard.
If I haven’t said it before i’ll say it now. Love your work on tax justice and (to an extent) MMT, but you’ve jumped the shark when it comes to Brexit.
No, I would not
Because none of this would have happened
So, your alternative hypothesis does not exist
So I think we are agreed that Remain or orderly Leave, the economic geniuses at the BofE would have been putting rates up. So It wasn’t a vote to be worse off by your formulation. In fact the only outcome that would make people better off (again, by your formulation, not mine) is a disorderly Brexit.
No we are not
Remain provides the possibility of a totally different economic strategy where we do not have to waste years on pursuing economic isolation
That is far removed from orderl;y Leave and can have very different consequences
The EU controls on state aid and deficits will be removed on Brexit including excluding the other 27 countries from contracts. Good for MMT adherent
Wow, how wrong can two sentences be?
Case in point British Steel was only saved from destruction by the devaluation of the pound despite the large consequences for the wider economy of losing the last home based steel supplier. State aid could of been applied until the steel markets had settled down by riding through the turmoil and the Chinese gaming of the system.
The EU rules also set out maximum deficit spending 3%/year although like most of their rules they ignore them when it suits (France&Germany). The UK could deficit spend in excess of 3% and direct that money into the productive MMT areas of the economy vs property/stockmarkets.
I think I am right however as you created it your definition and understanding of MMT would overrule me regardless.
But as has been pointed out often, state aid rules did not prevent us assisting Port Talbot
Other countries did support their steeel sector
Dogman stopped us supporting it
Richard, your post and defences of it are sophistry. In what way will the Leave vote (in Sandburg’s estimation, which is the basis of your post) cause mortgage rates to be higher than they would have been under a Remain vote? The answer clearly is (in Sandburg’s estimation) they won’t and, therefore, the whole premise of your post was silly.
I wish you’d take this as a lesson in how irrational you are being on this. Or maybe it was just a joke and I’m taking the implication that as a Leave voter I am a moron incapable of understanding the issues far too seriously?
You may read into it what you will
And as a leave voter I think that likely