Undoubtedly, you've heard of monetarist economic policy and fiscal economic policy? Polls apart. The first works at lessening the supply of money by shrinking government spending and raising interest rates. The second by the government spending tap being turned on and off, financed by taxation and borrowing.
The new kid on the block is modern monetarism or MMT. Because using interest rates has recently lost its value since they're at rock bottom and can't go further south, MMT believes in printing money. Using interest rates to control the economy is like having a gun with no ammunition.
Or quantitative easing as we call it.
Also known as the Magic Money Tree or free money or a national income. Corbyn's nascent government proposed it last year as well.
The only constraint to printing money is inflation. If inflation isn't moving upwards, then print a load more money. During COVID, the British government printed 300 billion pounds of the stuff, and inflation didn't budge until now.
However, the damage has been done. MMT requires the printing of money to enhance the money supply, which will cause inflation. We've printed 895 billion pounds during the last decade, and the Bank of England has bought mostly government bonds with that (source BofE 2021).
Coming out of the lockdown, fuelled by the vaccine, our economy is going to boom. Businesses and many consumers are flush with cash; unemployment is relatively low at around 5% (without the furloughed brigade). Most people have the money to spend. And they want to spend it. Travel, hospitality, entertainment, home improvement, home purchasing and so on.
Inflation is starting to nudge upwards, driven by supply problems around the world. Energy costs, just look at gas prices and the price at the petrol pumps. Builder costs, the price of garden furniture, computer chips, the list goes on. All these items are in short supply, which pushes up prices and knocks up inflation.
Probably short-lived. Supply will fix itself. Already we're getting more gas from Norway, and the USA is shipping a load over on tankers. So inflation edging northwards is probably only temporary, but I don't think so.
The upshot is more inflation as prices rise to meet the increase in demand. As a result, wages pick up to meet the increased cost of living. As inflation increases further or maintains its momentum, the Bank of England brings out the big guns. It has stopped QE already, so no more printed money. Now it raises interest rates to contain inflation.
Inflation is good for mortgage advisers simply because it makes debt less of a burden. A mortgage is a substantial debt. Plus, assets rise nicely too. A house is an asset, a tax-free one too. So arguably, inflation is our friend, but interest rates rising is not.
Just be wary of fixed rates; make sure your client is aware of what's happening. Fix now before interest rates rise, and they will.
Modern Monetary Theory or MMT followers are all to blame.
