The Economics Thread

Discussion in 'Current Events' started by ManUtd1999, Oct 20, 2017.

  1. Oct 20, 2017
    #1

    ManUtd1999 Full Member

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    Given what I do for living, I thought that a thread about Economics/U.S./World economies is called for. We can bring here links to interesting economics-related news.

    Let me start with this:
    There’s talk of capping 401(k) contributions at $2,400 per year

    "Lobbyists and others in the retirement and financial services industries who have spoken to congressional staff and committee members say lawmakers are looking at proposals that would allow 401(k) participants to contribute significantly less than what is currently allowed in a traditional tax-deferred 401(k). An often mentioned amount is $2,400 a year. It isn’t clear whether that would only apply to 401(k)s or IRAs or both."

    https://www.marketwatch.com/story/t...01k-contributions-at-2400-per-year-2017-10-20
  2. Oct 20, 2017
    #2

    Fridge chutney Full Member

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    Just yesterday the IRS increased the 401k contribution limit by $500 to $18,500.

    If the Trump administration wants to cap the limit at $2,400 just to fund a tax cut, he should be impeached. That is detrimentally short sighted.
  3. Oct 20, 2017
    #3

    ManUtd1999 Full Member

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    I guess that will not be $2,400, but it may be cut significantly from $18,500 a year. There is nothing beyond these people it seems.

    I also saw others outlets reporting on it, including these two:
    https://www.wsj.com/articles/talk-of-retirement-savings-cap-rattles-financial-industry-1508497200

    http://www.nationalreview.com/corner/452943/republicans-against-401k
  4. Oct 21, 2017
    #4

    ManUtd1999 Full Member

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  5. Oct 21, 2017
    #5

    Jippy Sleeps with tramps, bangs jacuzzis, dirty shoes Staff

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    What do you do for a living?
  6. Oct 21, 2017
    #6

    ManUtd1999 Full Member

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    Economics Professor.
  7. Oct 21, 2017
    #7

    marktan Full Member

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    Will rising interest rates help the stock markets crash? Highly unlikely but they've been a huge bull rally for about 5-6 years now that shows no sign of slowing down. I was hoping some of the China debt issues and Greece issues in 2015 would've done it, but no. I'd like to put some into funds/trackers etc, but the constant new highs worry me, even with the obvious advice that over the long-term the stocks always trend up. Just kind of waiting for a cheaper entry point.
  8. Oct 21, 2017
    #8

    Jippy Sleeps with tramps, bangs jacuzzis, dirty shoes Staff

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    Ah, that makes sense.
    Rising interest rates will negatively impact some sectors, but be positive for others. Brexit will be the obvious trigger for a massive sell-off, but I agree that we feel due one.
    My missus moved her Sipp all into cash a few months back.
  9. Oct 21, 2017
    #9

    jderbyshire Full Member

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    All I want to know is: is it wise or foolish to buy a house (in the UK) right now?
  10. Oct 21, 2017
    #10

    711 Full Member Scout

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    No offence taken if you don't want to answer, but what form does this cash option take?
    It's a nightmare at the moment, stock corrections expected, but the natural counter of holding more bonds is no good because rising interest rates will hit them too. I've got some inflation-linked bonds (UK & US), and whilst interest rates could hit them too, it's the best way to diversify I can think of except for cash.
  11. Oct 21, 2017
    #11

    donkeyfish Full Member

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    My understanding is that modern natural experiments has shown that if anything there's in many cases less savings than desired, with small nudges such as changing the default from opt-out to opt-in significantly influences the decision to save for retirement. It's always difficult to quantify, but I believe the implication should rather be to encourage rather than discourage retirement savings.
  12. Oct 21, 2017
    #12

    donkeyfish Full Member

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  13. Oct 22, 2017
    #13

    marktan Full Member

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    That and the ending of the massive stimulus packages that have been going on in the EU etc over the last 6-7 years should possibly see markets slow down. But unless one economy i.e. China crashes I only see small corrections in the market, with the overall trend still going upwards.
  14. Oct 22, 2017
    #14

    ManUtd1999 Full Member

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    This might be the outcome in the short term-- people get worried about their retirement savings and so they react by increasing saving now.

    However:
    1) to stay on the same path of retirement saving, they will have to save more in after-tax retirement saving programs (Roth IRA, for example). But that means saving more of after-tax income, which will most likely affect consumption behavior (you're saving a larger proportion out of a smaller amount).

    2) while the immediate impact might be as you describe, I'm not sure if that will be the long-term outcome. Most likely, we will end up between what you suggest and what I describe in the first point. The result: less saving for retirement.

    Another issue that is worthy of noting: laws can obviously change. Currently, if you save out of after-tax income (Roth), you won't be taxed on these savings later. But, who can guarantee that the laws won't make these savings taxable 10/20 years from now? What is good about 401(k) is that you know already that you didn't pay tax on these, and so you know that you will only pay tax once.
  15. Oct 23, 2017
    #15

    Fridge chutney Full Member

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    Could we be entering a new economic reality where low rates (and thus high asset prices) are the new long-run equilibrium? The alternative is that a downward asset price correction is forthcoming once QE is reversed and rates rise.
  16. Oct 23, 2017
    #16

    ManUtd1999 Full Member

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    Low interest rate is a new reality, partly because the natural real interest rate is lower. Unless the Fed starts shooting for 4% or so inflation target, the Federal Funds Rate will remain low.

    The President of the Fed of San Fran has been talking about it recently:
    http://www.frbsf.org/our-district/p...e-of-interest-rates-the-answers-in-the-stars/

    http://www.frbsf.org/economic-resea...al&utm_source=twitter.com&utm_campaign=buffer
  17. Oct 23, 2017
    #17

    Raoul Admin Staff

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    Trump has said he is looking for something between 3 and 4 percent growth and he's also about to appoint a new Fed Chairman, so i wouldn't at all be surprised if we see a change in fiscal policy that will obviously have a wide knock on effect elsewhere.
  18. Oct 23, 2017
    #18

    PedroMendez Acolyte

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    Didn't he recently make peace with Yellen? I just don't see why he'd be interested in changing the current monetary regime.
    He doesn't have the political capital that the president would need to do that successfully.
  19. Oct 23, 2017
    #19

    711 Full Member Scout

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    Presidents normally become dead ducks in their last year of office, this one seems to started out that way.
  20. Oct 23, 2017
    #20

    ManUtd1999 Full Member

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    President typically avoid replacing Fed chairmen who would like to continue for a second term:
    Carter appointed Volcker, and Reagan reappointed him
    Reagan appointed Greenspan, and George HW Bush, Clinton (twice) and George W Bush reappointed him
    George W Bush appointed Bernanke, and Obama reappointed him

    That's in a nutshell the past 40 years or so. Clinton and Obama reappointed Greenspan and Bernanke even though they were Republicans. Reagan reappointed Volcker despite being a Democrat.

    Replacing Yellen is a mistake because it brings the Fed more into the political debate, and because the economic conditions are good overall. There is really no need to fix the unbroken. Yes, Yellen may not be the most prominent figure to ever lead the Fed, but she is very experienced and served alongside Bernanke before.


    The problem is that he simply doesn't care. Plus, replacing someone that Obama has appointed must be the right thing in his base's view...
    Last edited: Oct 23, 2017
  21. Oct 23, 2017
    #21

    donkeyfish Full Member

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    I'm not sure prominence is a proper criteria to judge a chairman of the FED, although it may be for some.
  22. Oct 23, 2017
    #22

    Rawls You'll never find, that microfilm of mine

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    What would you think of John Taylor as a potential Chair of the Fed (I'm assuming that Trump appoints him)?
  23. Oct 23, 2017
    #23

    PedroMendez Acolyte

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    John Taylor would be a great appointment but it would surprise me if he gets the job.
    It's imo going to be Powell or Yellen. Both follow more or less the same ideas about monetary policy, while Powell might be willing to reduce some of the dott-frank regulations. Warsh (or anyone who proposes are tighter monetary regime) won't have a chance. Too much risk for trump with no upside.
    Last edited: Oct 23, 2017
  24. Oct 23, 2017
    #24

    ManUtd1999 Full Member

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    John Taylor is one of the best economists of the past 3 decades, and I don't think that many would question his fitness.

    He is known for the "Taylor Rule" that serves as a good proxy for the behavior of the Federal Funds Rate (FFR). If appointed, it would be interesting to see if he will be more rule-guided or more flexible (the typical rules vs. discretion debate). There is now a need for more discretion given how low the FFR is, and the Fed may need to come with creative ideas from time to time. How would that fit with Taylor's approach remains to be seen (if appointed).

    Personally, as someone who admires him a lot, I hope that someone else will nominated. I just don't want Taylor's name to be mentioned too often in the political debate or be used by the current POTUS (in any other environment, I wouldn't mind him being nominated, especially after the current chairperson finishes two terms).
    Last edited: Oct 23, 2017
  25. Oct 23, 2017
    #25

    Ecstatic Full Member

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    In a nutshell, what's the contribution of John Taylor?

    The right answer should include something like "Debt is evil"
  26. Oct 23, 2017
    #26

    PedroMendez Acolyte

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    He understood that multipliers in new Keynesian models are smaller than previously expected.
  27. Oct 25, 2017
    #27

    donkeyfish Full Member

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  28. Oct 25, 2017
    #28

    Abizzz Full Member

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    Wait, so Trump is likely to hold on to Yellen? (Would be great news considering anyone replacing Yellen would inevitably be someone Trump thinks much of.)

    Did I miss some major news on this or is it just speculation?
  29. Oct 25, 2017
    #29

    Rawls You'll never find, that microfilm of mine

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    I think the only real "Trumpian" candidate was Gary Cohn, but he is exceptionally unlikely to get the job. I think the other options are Yellen, John B. Taylor, Kevin Warsh, and Jerome Powell; AFAIK, Powell is the favourite, with Yellen in second. I'm fairly sure that Powell is the candidate who is most similar to Yellen as in there would likely be no major change in Monetary Policy.

    http://www.bbc.com/news/business-41702092
    https://www.nytimes.com/2017/10/24/us/politics/trump-fed-powell-taylor-yellen.html
  30. Oct 25, 2017
    #30

    Abizzz Full Member

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    Very interesting read. Hits the nail on the head in many respects.

    Ah, thanks. I tried to tune out when Trump has his 'finalists' moments, but this one is really too important to do that. Going by the picture NYT paints they're all pretty acceptable, which is a relief.
  31. Oct 25, 2017
    #31

    ManUtd1999 Full Member

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  32. Oct 25, 2017
    #32

    Raoul Admin Staff

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    Speaking specifically about markets, I tend to go by the business cycle...which appears to be nearing its end at the moment and is just waiting for an inciting incident to close the deal.
  33. Oct 30, 2017
    #33

    PedroMendez Acolyte

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  34. Oct 30, 2017
    #34

    ManUtd1999 Full Member

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  35. Oct 31, 2017
    #35

    Ecstatic Full Member

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    I want to know your views about the next Financial Crisis.

    Also, is the Brexit a good or bad thing from an economic standpoint?
  36. Oct 31, 2017
    #36

    Adisa likes to take afvanadva wothowi doubt

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    Looks like BOE will raise rates on Thursday.
    Banks my office work with all pprepping for a rate rise.
  37. Oct 31, 2017
    #37

    Jippy Sleeps with tramps, bangs jacuzzis, dirty shoes Staff

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    I'm not so sure it's a done deal tbh. Growth is pretty anaemic and inflation peaking. If they do go for 25bps, it only removes the post-Brexit emergency cut tbf.
  38. Oct 31, 2017
    #38

    PedroMendez Acolyte

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    They kind of already telegraphed the rate hikes. Not doing so would be a concerning surprise.
  39. Nov 1, 2017
    #40

    Lentwood Full Member

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    The idea that markets will regulate themselves is absolutely laughable, not sure you need to be a world-renowned economist to predict what will happen when the majority of the major industry verticals are dominated by a handful of huge corporations

    It's about time we took a more pragmatic approach, free-market principles for the most part supported by meaningful regulation to protect consumers and encourage competition. At the moment neither the UK nor the US seem to be able to find any happy middle ground between lassez-faire Capitalism and Nationalisation