Before the crash we had the NICE decade: No Inflation Constant Expansion. Gordon Brown promised the suits and bigwigs at Mansion House in 2006 he would 'maintain our anti-inflation discipline'. Yet in the ten years prior to that boast, the average real house price in the UK rose by 176%. Nice. CPI and RPI don't includes house prices and so stayed low, but what's a nearly threefold price increase in something everyone buys, or aspires to buy, if not inflation?
General inflation happens when there's too much money in circulation and it takes wealth from rich and poor alike. But this inflation was sneaky. The money wasn't circulating generally, it was taken by financial corporations and went to the people who control them. Giving lots of money to a few people doesn't cause inflation because the rich don't buy huge quantities of stuff, they just buy the rarest and best. They occupy the nicest places, eat the choicest foods, sit in the front seats.
Financiers weren't the only beneficiaries of sneaky inflation, it also acted as a massive transfer of wealth from workers paying their mortgages to the prior owners of land. In 1845 these two pillars of the Tory party were at war over the Corn Laws; a hundred and fifty years later both got to feast on the hard work of the middle class.
When a bank gives you a mortgage they invent the money, it's not taken from someone else to be given to you. The government regulates, laying down the rules of this lending, then hopes the bankers follow them while they pay themselves millions of their made-up cash. The Bank of England sets an interest rate then the private sector adds itself a fat cut and that's the rate you pay. This is crazy.
We deserve better from the Bank of England. What we deserve is the Banks of England, public institutions allowed to make up money for us to buy houses with. There's no reason why public employees can't check that people meet the requirements for mortgages decided by other public employees. This would allow the government to set the actual interest rate that homebuyers pay and the money returned would fund schools and hospitals instead of Louis XV pet pavillions and adultery-shielding superinjunctions.
All would pay the same rate and no one would be refused credit if they could prove steady income. How much could we borrow? Well how about treating us the same as banks and letting us draw out a fixed ratio of our reserves (deposit). Private banks would be able to compete on service, at the price level set by the state.
That solves the unjustified wealth transfer to the to the merchant class, but leaves the pockets of landowners swelled and swelling. If the government were to offer loans at sensible capital ratios then they would be useless in most parts of the country as a national mortgage wouldn't cover the price of a home. There's only one solution to this problem and it's to build more houses.
Perhaps the Tory party can rediscover the spirit of 1845 and once again face down the Landed Interest for the good of the nation. Or some other party could step up.