Bonkers Economics

Is this such a bad thing? Surely people need mortgages to buy houses?

Yes, but the level of lending for mortgages is directly linked to higher house prices, and the main beneficiaries of that are landowners and speculators, and the banks that provide bigger mortgages as prices go up. If house prices came down, much more money would be available to invest in the productive economy - making and doing useful things.

All those loans for financial trading? What’s that about?

Banks are only interested in risk and reward, not usefulness or social good. Using money to accumulate more money by speculating or trading is much easier and less risky than lending to a new small business or backing a new product idea.

Can the government do anything about this?

It can, but it won’t. The government measures economic activity - and growth - in terms of money transactions, not useful production. So higher house prices, bigger mortgages and more financial trading and speculation are a quick way to achieve success.

So what should the government be doing?

The government gives the banks the power to create new money, so it can easily direct them to lend it only to useful production. Or it could take this power away entirely, creating new money itself and putting it into productive activities.

Is this such a bad thing? Surely people need mortgages to buy houses?

Yes, but the level of lending for mortgages is directly linked to higher house prices, and the main beneficiaries of that are landowners and speculators, and the banks that provide bigger mortgages as prices go up. If house prices came down, much more money would be available to invest in the productive economy - making and doing useful things.

All those loans for financial trading? What’s that about?

Banks are only interested in risk and reward, not usefulness or social good. Using money to accumulate more money by speculating or trading is much easier and less risky than lending to a new small business or backing a new product idea.

Can the government do anything about this?

It can, but it won’t. The government measures economic activity - and growth - in terms of money transactions, not useful production. So higher house prices, bigger mortgages and more financial trading and speculation are a quick way to achieve success.

So what should the government be doing?

The government gives the banks the power to create new money, so it can easily direct them to lend it only to useful production. Or it could take this power away entirely, creating new money itself and putting it into productive activities.

Is this such a bad thing? Surely people need mortgages to buy houses?

Yes, but the level of lending for mortgages is directly linked to higher house prices, and the main beneficiaries of that are landowners and speculators, and the banks that provide bigger mortgages as prices go up. If house prices came down, much more money would be available to invest in the productive economy - making and doing useful things.

All those loans for financial trading? What’s that about?

Banks are only interested in risk and reward, not usefulness or social good. Using money to accumulate more money by speculating or trading is much easier and less risky than lending to a new small business or backing a new product idea.

Can the government do anything about this?

It can, but it won’t. The government measures economic activity - and growth - in terms of money transactions, not useful production. So higher house prices, bigger mortgages and more financial trading and speculation are a quick way to achieve success.

So what should the government be doing?

The government gives the banks the power to create new money, so it can easily direct them to lend it only to useful production. Or it could take this power away entirely, creating new money itself and putting it into productive activities.