The Current Monetary And Fiscal Policy Essay - 955 Words

Keynes would be adamant of government intervention and new policy reforms which seek to address market distortions created by the government’s stance on the current monetary and fiscal policy. The principle of Keynesian economics is that in the event investment exceed savings inflation would result. Similar principle could be applied to the housing market where investment properties are finance by large mortgages with only a fraction of the cost funded by savings. To combat investor demand interest rates should increase to a sustainable rate making mortgage financing more costly thereby reducing gains from property speculation. At the same time returns in investing savings in banks would increase as a result of higher interest rates which effectively reduces the margin of returns between property speculation and term loans. This would negate incentives for investors but does not account for owner occupiers. Furthermore, Keynes would implore the government to restrict banksâ₠¬â„¢ lending amount to lower than 90% of property cost making access to credit harder along with stricter borrowing criteria. Therefore, adjustments to monetary policy should see falling demand for investment properties leading to more affordable housing. The government’s current fiscal policy offers considerable tax concessions for properties buyers further inducing the attractiveness of property market speculation. Henry tax review had negative gearing capped at 40% but this amount remains tooShow MoreRelatedCurrent Economic Conditions: the Role of Fiscal and Monetary Policies in the United States3692 Words   |  15 PagesCurrent Economic Conditions: The Role of Fiscal and Monetary Policies In the United States July 25th, 2012 Over the past ten years, we have seen a weary world with uncertain economic turns with more downswings than upswings. 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