A Discussion On Monetary Levers
Why access to credit rather than interest rates should be the primary tool of monetary policy.
For policy makers to minimize the human misery from economic booms and busts it’s important they have the right tools for the job. For the better part of a century interest rates have gone unchallenged as the primary monetary tool for Central Bankers and policy makers. It’s time that we put modern economic theory to the test. This critique of monetary levers reviews the validity in the faith and emphasis of interest rates as the primary monetary lever and proposes the incorporation of access to credit to create a suite of monetary tools. After all policy makers, like builders, need the right tools for job.
The Market Place
First, let’s take a moment and imagine a bustling market place, full of people buying and selling their wares, vendors calling out their sales - there’s everything from fresh fruit and vegetables to furniture and clothing available. Like many markets and businesses this marketplace has rules to enter and only the people that meet the rules or can pay the gate fee are allowed in. While it’s busy and bustling inside, the entry rules mean there’s people left on the outside, looking in, watching the traders go about their day, seeing the goods get bought and sold, but unable to participate. To these people, these outsiders, it doesn’t matter what the prices inside the market are. The market prices have little to no affect on them as they can’t access the market. So when the market manager or landlord changes the stall fees these outsiders don’t notice whether prices have gone up or down.
Sadly, this imaginary marketplace is a reality for so many people in our communities. These are everyday people trying to access the property market, trying to buy a home, but because of regulation, lending discrimination, deposit requirements, employment requirements, hurdle interest rates, lending policy and other factors they’re stuck on the outside. While there’s thousands of other markets this phenomena also relates to, in this critique we’re going to focus on the housing market as it is so commonly linked to interest rates, stimulus, and economic well-being.