The Economics Thread

ManUtd1999

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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
 

Fridge chutney

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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.
 

ManUtd1999

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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.
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
 

Jippy

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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
What do you do for a living?
 

marktan

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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.
 

Jippy

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Economics Professor.
Ah, that makes sense.
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.
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.
 

jderbyshire

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All I want to know is: is it wise or foolish to buy a house (in the UK) right now?
 

711

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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.
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.
 

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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.
 

marktan

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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.
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.
 

ManUtd1999

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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.
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.
 

Fridge chutney

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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.
 

ManUtd1999

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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.
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
 

Raoul

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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
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.
 

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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.
 

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

ManUtd1999

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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.
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.


He doesn't have the political capital that the president would need to do that successfully.
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...
 
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Rawls

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

PedroMendez

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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.
 
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ManUtd1999

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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)?
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).
 
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Ecstatic

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

The right answer should include something like "Debt is evil"
 

Abizzz

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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?
 

Rawls

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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?
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
 

Abizzz

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

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
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.
 

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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.
 

Ecstatic

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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?
 

Adisa

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Looks like BOE will raise rates on Thursday.
Banks my office work with all pprepping for a rate rise.
 

Jippy

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Looks like BOE will raise rates on Thursday.
Banks my office work with all pprepping for a rate rise.
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.
 

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