The wealth effect out of all of this would all feel that much better off, wouldn't we? That we would... If you did it right now, we would increase our spending. I mean, when I model it, I do get a boost in spending. But then the debt level falls, both private and public, because you have more economic activity. Now again, we're stuck with living in a world where you don't want more economic activity in terms of climate change. The fact we're having so many crises that once I can again blame on the economics profession.
We last had a financial crisis in 2008 (ignoring the pandemic years), and if we’re not in another crisis now, we’re well on the way to it, with mortgages rising, taxes increasing and the price of everything continuing to rise. Your spending power is being hit in three directions. But, isn’t that what central banks want? So we spend less and inflation comes down, theoretically. Yet the banks, who might not be to blame this time, are now feeling the hurt. In fact, they stand to gain from rising interest rates because they can raise their borrowing costs. This week Phil asks Steve, will the banks always win, come what may?
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