Will the UK economy slowly decline because the largest driver for M2 supply is residential mortgages?
I have a gut feeling that creating money to buy houses is a terrible idea. I agree with the principle of expanding the money supply to accommodate a growing economy, but surely expanding the supply more than the increase in houses is just leading to inflation. It seems to me that the new creation of money should be tired more to commercial loans and infrastructure spending. I’m probably over simplifying it, but for all the discussion about how to fix productivity and reduce weather gaps, it seems one major factor is the deregulation of the mortgage market.
If the creation of new money depended on businesses trying new ideas and people starting new businesses, surely that would result in a stronger economy than just inflation house prices? It would also drive a cultural change for innovation and improvement.
Apologies if this is school level economics but it seems so obvious I feel like I’m missing something!