Wednesday, 2 December 2009

Free market eh

Adam Posen, a member of the Bank's Monetary Policy Committee, said that the Government should consider slapping extra taxes on British properties, suggesting that in future homeowners should have to pay an extra charge if prices rise too fast. In comments which will cause extreme disquiet in the Treasury, he even indicated that this may mean imposing capital gains taxes on first homes and raising stamp duty.

The comments, in a speech at a conference in London on Tuesday, are highly unusual since MPC members generally steer well clear of comments on fiscal policy. But Mr Posen, the newest member of the nine-person committee, said that while he was "speaking solely for myself alone as an economist looking at the boom-bust problem", he felt some kind of tax penalty on house prices was an important solution to Britain's repeated housing crashes.

And there I was thinking that boom and bust was a combination of government regulation and BOE inflation and contraction of the money supply (in order to extract wealth from the population). House prices are grossly overvalued because of cheap credit and government dictating how banks lend money.

Raises demand does it not?

Demand outstrips supply and pushes up prices does it not?

If that cheap credit and dodgy loans didn't occur, demand would drop, and house prices would drop, like any other commodity in any other market in the history of trade. Then people would be able to buy homes at a sensible price. Deposits would be lower, payments would be lower, leaving people with more money to buy other things, stimulating other parts of the economy.

Well, that is what would happen in a free-market anyway...

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