Thursday Open Thread

“Change is the law of life. And those who look only to the past or present are certain to miss the future.”

–John F. Kennedy

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25 Community Comments, Facebook Comments

  1. MADCO says:

    It's a buying opportunity.
    I don't think those who can are done inflating the bubble. Deficit has room to grow.

    And interest rates are low- so borrow more, right.

    I hate this presidential administration.

    • harrydobyharrydoby says:

      Due to Trump's erratic, contradictory, and counterproductive trade policies, businesses are unable to make long term strategic plans, thus freezing investments.  

      The fallout of that means there is an excess of capital sloshing around the world with few safe harbors in which to wait out the storm.  This is leading to a bizarre scenario that may one day broach our shores.

      [Denmark’s Jyske Bank] last week started offering home-buyers 10-year mortgages at an interest rate of minus-0.5%. That means borrowers over a decade will pay back a little less than the amount borrowed, not including one-time fees.

      …investors are so nervous about the future they’re willing to actually lose a little money by lending it to a borrower that is almost certain to pay it back, rather than risk betting on something that could go bust. In a healthy economy, investors would put their money to work in profit-making ventures such as factories or office buildings.

      Economic growth is slowing globally — in part driven by President Donald Trump’s ongoing trade war with China. But there is a growing debate over whether the global economy is only softening, or coming in for a hard landing.

      Today, Japan, and seven major European governments, including Germany and France, are able to sell bonds with negative yields, as are corporate behemoths Nestle and Sanofi, whose size gives investors confidence they could withstand a downturn.

      Because we have already lowered our interest rates to historically low levels, it is even doubtful that monetary policy has much stimulative kick left.

      Pacific Investment Management Co. and JPMorgan Chase — have predicted that U.S. Treasury bond yields could go to zero or lower if the U.S. tumbles into a recession.

      We would have to resort to deficit spending (fiscal stimulus) to have any hope of pulling ourselves out of another GOP-caused recession.  On the upside, money would be cheap (although careful management would be needed to prevent excessive inflation), and if it is spent on infrastructure instead of just writing more big checks to the wealthy, it could actually be a good thing in the long run.

      • RepealAndReplace says:

        So much winning!

      • ParkHill says:

        The fallout of that means there is an excess of capital sloshing around the world with few safe harbors in which to wait out the storm.  This is leading to a bizarre scenario that may one day broach our shores.

        The present situation is a bit unusual – Supply Side stimulus with Demand Side stagnation.

        Rich people are having trouble finding investments they perceive are safe. They don't seem to be investing the huge tax breaks they received, rather stashing it in tax havens and luxury apartments. Companies are buying back stock rather than increasing production. They seem to know that increasing production will not be met by increased purchasing. 

        People seem to have jobs, but wages are not rising because workers don't have negotiating power. The millennial generation is saddled with student loans and high housing prices. This looks like stagnation rather than recession.

        US recessions tend to come from a collapse in buying power on the part of consumers, i.e. houses and "stuff". This is often triggered intentionally by the Federal Reserve – raise interest rates to cause the housing market to crash. 

        Here's an interesting "deep state" idea for the 2020 election:

        What if the Federal Reserve raised interest rates by a point or more, causing a recession. If the economy tanked, people would blame Donald Trump – it always works that way.

        • harrydobyharrydoby says:

          Millennials and succeeding generations are locked in a vicious cycle — low-paying, unstable gig economy jobs and saddled with excessive student debt, suppressing both consumer demand and wealth accumulation, leading to less advanced education, diminished competitiveness, a lower standard of living and higher needs for social spending and thus higher taxes in the coming decades.

          Income and wealth inequality have risen to heights unseen since the Gilded Age more than a century ago.  As boomers die off, their wealth will be dispersed among their heirs, but without significant inheritance taxes, wealth inequality will not be adequately addressed. 

          Michael Bowman's "Head start" video will still be accurate decades from now without higher wages, lower cost of education, and significant wealth taxes.

          But as for the Fed raising interest rates to provoke a recession, no there is no chance of that.  Rates will only go up if somehow we trigger a sudden inflationary spiral, which at least in the next year or two is highly unlikely.  Asset bubbles due to extraordinarily low interest rates, however, are almost assured.

           

        • MADCO says:

          supply side is a waste of time if the demand is not there.
          see #pushingonastring

           

          the proletariat became the middle class and now is the precariate

          Meanwhile- plutonomy and the plutachracy do just fine.

      • Diogenesdemar says:

        “The fallout of that means”: . . . 

        . . . that businesses that have capital and should be investing, modernizing, upgrading, and providing jobs to fuel an expanding economy, aren’t.  They’re afraid to invest because they have no idea WTF Le Orange enfant terrible is going to hear on FOX next, so they’re not doing those things we need them to do to keep an economy productive . . . 

        . . . President Shithead is a one-man formula for economic destruction.  We’ll be lucky if we just have to endure his recession and not a total worldwide economic collapse. 

        Negative interests rates are merely one way of banks indicating that they’re seeing, and betting on, the likelihood of a severe recession; otherwise they’d just keep the money in their vaults.

        • harrydobyharrydoby says:

          The convergence of bad economic trends is very scary — EU is under tremendous strain due to the imbalances caused by the Euro and the pressures of supporting weaker economies (i.e. Italy).  And that is even before the likelihood of a hard Brexit and the massive disruptions that will cause on all sides.

          Then along comes Trump with his "That's my candy!" economic philosophy.

        • harrydobyharrydoby says:

          Negative interests rates are merely one way of banks indicating that they’re seeing, and betting on, the likelihood of a severe recession; otherwise they’d just keep the money in their vaults.

          Actually, according to the article above, the banks are getting their money at an even steeper discount, so are making a small profit even at negative interest rates (thanks to very frightened, but cash heavy, investors).  In the short term, the benefit of this is keeping the money in circulation, which does have a positive multiplier effect on GDP.  Keeping the money in a vault causes illiquidity and would rapidly lead to a depression.

  2. ParkHill says:

    What is a Wealth Tax? 

    Well, property taxes are a typical example we are all familiar with.

    But, this article is a comprehensive discussion of who has the most wealth and how a wealth tax would fall out.

    • RepealAndReplace says:

      It's been a while since I took economics but I always recall hearing the property taxes are the most regressive types of taxes.

      • ParkHill says:

        Sales taxes are the most regressive because poor people spend a much higher percentage of their income on "things". Rich people might buy more things than poor people, but eventually they run out of things to buy, and the excess is siphoned off into investments and tax shelters.

        Property taxes are paid by home owners and renters, at a fixed rate (depending on locality). The rates themselves are not progressive, but wealthy people tend to buy bigger houses, so they pay more property taxes than poor people. The same argument as above remains – as rich people run out of bigger houses, the rest of their income goes to investments and tax shelters.

        The locality problem means that a school district full of small homes has to have higher rates to cover the school expenses, when compared to a school district with very large homes. Pity the poor rich neighborhood stuck in the middle of a large, modest-homed school district. Oh wait… the usual situation is that a new, expensive neighborhood is placed out in suburbia in a new school district with gerrymandered boundaries that exclude poor neighborhoods.

        So, yes there are inequities with property taxes.

      • harrydobyharrydoby says:

        Actually, I believe flat taxes (VAT and sales taxes) are the most regressive because you can't escape them (unless you are in a barter economy), but yes, property taxes for anyone able to buy a home, are in that class as well.

        • VoyageurVoyageur says:

          An unfair tax is one I pay.  A fair tax is one you pay!

          But the problem with a wealth tax is that, like property, you pay the same in good years and bad.  An entrepreneur like Polis might Earn $100 million one year, lose $30 million the next.  Under the wealth tax, he'd owe $2 million on his $100 million net worth though he might have no liquid assets.

          Much fairer and more revenue enhancing is to tax all capital gains above $10,O00 as ordinary income.

        • MADCO says:

          renters pay property tax too – as part of the rent

          • harrydobyharrydoby says:

            Well, actually, renters pay whatever the market will bear.  If it covers the owner's expenses, fine.  If not, then the owner eats the difference or tries to get creative on ways to raise the effective rent.

  3. MichaelBowmanMichaelBowman says:

    Are we going to get through the entire day without someone old enough to remember Woodstock wishing it a happy 50th birthday??? 

  4. MichaelBowmanMichaelBowman says:

    Does this come with two progressive senators? 

    Trump Eyes a New Real-Estate Purchase: Greenland

    The idea of the U.S. purchasing Greenland has captured the former real-estate developer’s imagination, according to people familiar with the deliberations, who said Mr. Trump has, with varying degrees of seriousness, repeatedly expressed interest in buying the ice-covered autonomous Danish territory between the North Atlantic and Arctic oceans.

    In meetings, at dinners and in passing conversations, Mr. Trump has asked advisers whether the U.S. can acquire Greenland, listened with interest when they discuss its abundant resources and geopolitical importance, and, according to two of the people, has asked his White House counsel to look into the idea.

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