“For most of my life, one of the persons most baffled by my own work was myself.” - Benoit Mandelbrot

Why aren't you baffled?

I'll presume that you don't like Professor Mandelbrot's work, or maybe you're just not familiar with it.

His work rejects the orthodoxy taught in finance, how markets work and therefore by extension, how policy making probably should be conducted.

My gripes in this brief letter are from the perspective of policies that simply are not working.

I'll ask again; why aren't you baffled?

I've seen first-hand the absolute pandemonium that is going on in housing.

This letter isn't all to do with the MPC's decision making, but I'd argue the foundations of them definitely are born through the last ten years of monetary easing, and perhaps, we could extend that out to the last forty years of debt based expansion.

I'll set the scene so you know where I'm coming from...

My parents are getting older, the garden is too big for them and all they want is a nice and cosy place to retire to.

They decided to put their house on the market.

They were overwhelmed with interest, leading to three or four viewings every day.

To demonstrate how fast this market is, they had an offer after just six days.

In the midst of a pandemic and recession, you'd have to ask yourselves why this demand is here.

Unemployment is up, the furlough scheme has provided some assurances to incomes in the short term, but these two aspects combined shouldn't lead to the largest house price boom of our lifetimes, should they?

So what could be driving this?


The Chancellor introduced the Stamp Duty cut.

This led to Mr. Buyer desperately offering above the ask to get the sale done before the deadline.

My parents were then thrust into the position of looking for a house in a hurry...

Like many retirees, they wanted to downsize but they were faced with a market where £550,000 cash, would only get them a basic flat in a worse area, or a house that needs extensive renovation.

Because of the enormous compromises for such little benefit, they decided not to go through with completion and took the house off the market.

My parents are only a miniscule part of this story though, but one which is replicated many times over.

From speaking with others, this situation has been consistent through the last six months especially, but it's actually been going on for a lot longer than that, hasn't it?

Now for some data

This is a broader longer time series from Schroders showing the broader trend.

Now let's look at house prices this year relative to wages, in the midst of a pandemic and recession.

The ratio of house price to first time buyer income at the end of 2020, stood at 5.2, near the 2007 record high of 5.4.


And even the general house price to earnings ratio for non-FTB is extremely elevated.

It has never been harder for people to get on the housing ladder.

Is that not a scary thought?

Taken from the ONS, between 2007 & 2017, you can see the composition of homeowners/renters.


Buying with a mortgage has decreased over the years, amount of people renting has increased, whilst those who own outright has increased.

That 'owned outright' segment are hardly going to be younger people, are they?

It is most probably the older generation benefiting from lower interest rates and rising house prices.

And it is exactly this part that I have the biggest contention with.

You can gloss over the ridiculous increase in housing costs with 'Help to Buy', 'LISAs' and 'shared ownership' schemes, which you know only supports house prices.

Surely you realise what's happening here?

What you are doing with your policies is creating a sub-optimal wealth effect.

A wealth effect that sure, makes some people feel like there is confidence in the system...

Those people are mainly property-owners...

I rent a house

I'd love to buy, and I am fortunate to be in a position that I am able to.

However, I refuse to forgo my happiness to live in an area (or house) that I don't like whilst paying an average deposit of...

...checks notes...


...for the pleasure of living in the city that I was born.

When do you see what you are doing as both baffling and untenable?

The problem with our society is as Henry Ford stated.

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

For too long, politicians alone have felt the brunt of our housing cost issues...

Although they are certainly complicit, monetary policy plays a far larger role than many realise, and I feel this is the main reason as to why the problem hasn't been addressed.

The general public don't 'get' monetary policy, as Mr Ford states.

We're now in a situation where the young can't get onto the ladder without high cost (proven by the introductions of schemes such as Help to Buy) and retirees cannot downsize adequately.

And I make no overstatement there when I say that you are ruining people's lives with policies that price people out of stability.

That's what we should redefine homeownership as.


And many are being disenfranchised from said stability due to the increasingly ridiculous cost of a deposit.

Focus on the now

Central banks have recently recognised the risks that climate change poses to financial stability and promised to incorporate climate risks into policy making.

Whilst climate change has the potential to cause instability, there is something policymakers are missing entirely.  

And that is the far more immediate problem of many young people feeling entirely economically disenfranchised.

Is that not a risk to financial stability, and more so than possible future issues to do with the climate, which in fact are being rectified well?

The generational divide

Balanced demographics, are key to a sustainable economy, and we are on the way to following Japan and the Eurozone's quite apathetic outlook.

Without the adequate demographics, then policy aims will fail to be achieved, whether that is inflation or growth, which will always put financial stability at a detriment.

The largest risk going forward is that of continuing poor demographics, spurned by the policies from central bankers.

Again, it baffles me as to why you have not taken the example of Japan and possibly more recently, the Eurozone, as examples of what happens with low rate policies and excess liquidity through QE being flushed into the financial plumbing of the economy.

They starve prosperity.

Look at the Japanese economy and as an extension, their demography.

The number of children born in 2019 was 40% lower than in the mid-1970s.

This is not because of some weird phenomenon where human biology has been thrown out of the window.

This is because, ironically, there is a belief in lack of stability of the future amongst a younger cohort.

About a quarter of Japanese men reaching their 30s have not had sex.

And why do you reckon this is?

Well, Japanese productivity is hailed as being the best in the world by many - this paints an abjectly false picture.

In the 90s and 00s (and still now), Japanese firms which should have failed have been propped up by banks through their QE programmes, programmes which you yourselves are strongly committed to.

These firms should have gone under.

Instead, they survive amidst a risk distorted corporate sector, where workers actually overwork themselves (thus providing the perception of better productivity by western commentators), without being able to forge relationships...

These firms are the viscerally named, zombie firms.

This study from Japan, finds that amongst males workers, job insecurity and role ambiguity are significant factors in psychological distress.

Several meta-analytic studies have reported the association of JI with poor mental health, such as common mental disorders and depressive symptoms.

The definition for role ambiguity is:

“The extent to which clarity regarding job performance expectations, methods for carrying out the job, and consequences of performance is lacking.”

What might make someone feel as if their job is either insecure or their role is ambiguous?

Probably if the company they work for is 'only just' surviving.

There's no real prospect of career growth, no potential to earn an increasing wage.

The firm is on life support and so are its employees.

While concentrating on dealing with the aftermath of the bubble, Japanese firms were unable to adapt fully to major changes in the global economy such as advances in information and communication technology and intensified global competition. In addition, in the aforementioned deflationary equilibrium, innovation by firms was stifled and productivity growth thus subdued for a protracted period.

Without a sense of security, why would a young Japanese person want to form a relationship and have children?

Things aren't working

Sure, your policies are there to boost inflation, but where is the evidence for said policies achieving this on the measure which you most pay attention to, CPI?

Chairman Jerome Powell recently even said that the relationship between the money supply and GDP growth (which you would want with a corresponding increase in inflation) is disconnected.

So where is the aggregate demand shift coming from and why then do so many believe QE is inflationary?

Because you and I both know that it isn't, is it?

Somewhere along the line, there is a bottleneck between providing the banks with liquidity and them then providing credit to the economy.

In your own report in December, you noted that the lending standards through 2020 had tightened.

So what are you committing to with Quantitative Easing going forward, and what had you committed to previously, when you know the market would become addicted to liquidity?

You are at the zero lower bound now.

How would you explain that you get away from this?

Do you not believe that it is time to follow a different policy other than inflation targeting?

I am sure you are familiar with Goodhart.

“When a measure becomes a target, it ceases to be a good measure.”

This is the conundrum you now have yourselves in.

Where you should be focused on the prosperity and stability of the population - especially the young who are funding pensions - you leave us by the wayside, focused on the asset rich and pushing people to become land bankers.

This is poor for productivity.

UK land is valued at about £10tn.

Why do we have so much capital locked up in an asset that does not provide a return to anyone but the owner, and actually, sucks up value from public spending?

You can't make more land.

Yet, as Mr Powell said above, the economy is not correlated to the money supply, but guess what is?

Yep, that perfectly supply inelastic entity, land.

You wonder why you're not getting adequate inflation and growth?

Well, it's because all of what you are doing is at the benefit of land prices and not to the benefit of creating a more productive economy.

And the effects of this are exactly what I said - people feeling that they have no way to create a stable home; firms that are just surviving, propped up by debt they can only just service without improving their product or service (the high street isn't gone because of the internet, it's gone because the cost of commercial rents exceeded their profit margins).

There is nothing worse than apathy and melancholy.

An economy crashing and having a reset organically is a better outcome than what we have now.

The 'just surviving' economy is what really kills a country.

The census is out soon, and I am wholeheartedly expecting an increase in household size as more people, not just the young, live with their parents or rent with others.