Posted on 12/27/2018 11:52:59 AM PST by COUNTrecount
This is why the economy grew in leaps and bounds in the Carter years -- right?
Dude -- the Carter years were a period of economic malaise, not massive growth. In fact, the term "stagflation" was coined to describe the unusual combination of economic conditions back then: anemic growth combined with very high inflation.
It says a lot about your perspective that you'd look back on those times as a standard to follow. Who cares about what most Americans are experiencing, as long as union workers have a lot of political power to buy off politicians and keep themselves paid well while everyone else is getting screwed?
Do you even belong on this website?
Big Investers confuse RoR, Fed rate and Inflation.
An investment paying 6% within 9% inflation is bad.
An investment paying a lessor 2% in 1% inflation is good.
The best investment environment is lower taxes and less regulation. However on top is the rigging factor.
Many investors benefitted in the Obama years, but homeless camps sprung up so it could not last forever, because soon you too could be homeless.
That was the rigging factor. The Fed’s propped up the market, at a cost of ever increasing homelessness.
Many Big Investors vote Never Trump because they vote for no change. They should be voting for sound economics instead.
If you agree pick one. If not explain please.
Re: post #71
Very nice how you put the numbers together; really makes your point.
Let's suppose you have $100 million to invest and you have an option to either buy long-term U.S. Treasury bonds or S&P 500 stocks. Let's suppose the inflation rate is 2% -- matching the long-term FED target.
If you buy $10 million in U.S. Treasury bonds that pay even a high (compared to recent years) return of 5%, you have a gross return of $500,000 but your actual return is much smaller.
1. You immediately lose $200,000 to inflation. Your $10 million is only worth $9.8 million after one year.
2. If you're investing $10 million you are likely in the highest tax bracket, so you're paying an income tax rate of 37%. So you lose $185,000 just in Federal income taxes (we'll ignore any state tax implications here).
So your $10 million earned you a net of $115,000 ... a 1.15% return even though you invested in a "safe" investment with a nominal return of 5%.
If you invest in an S&P 500 index, you'll earn an average 2% dividend return over the long term ... and over the same long term you'll see an average appreciation of at least 8% in the value of the stocks. Let's assume these are your returns for the first year.
1. Your $10 million earns $200,000 in dividends. It sees an $800,000 increase in value.
2. Your dividend is subject to a special tax rate of 20%, so you pay only $40,000 in income taxes on the $200,000 in dividends.
3. If you sell the asset after one year, you pay a capital gains tax of only 20% on the $800,000 gain. So that's another $160,000 in taxes.
Add these up and you get an 8% return on this investment.
Go through these numbers again and ask yourself why anyone who is in a position to invest $10 million with some risk exposure would ever buy the U.S. Treasury bonds -- even at a high rate of 5%.
GDP is the sum total of all economic output in the economy. Its growth is driven by increases in population and productivity, not interest rates. If I can earn a 20% return on an asset I may have no qualms about borrowing money at 10% to buy it. If I can only earn 5% then I sure wouldn't borrow at 10%.
Thanks! :)
So if the Feds raised the rate to 25% what would happen to GDP? If the Feds lowered the rate to 0% or went negative what would happen to GDP?
I'd ask you to answer your own questions. What do YOU think would happen?
You might see GDP go through the roof in the first scenario, but it would all be illusory growth because inflation would destroy it.
You have a perfect example of what would happen in the latter scenario right here in the U.S. from 2009-2016. What happened to GDP over that period? It barely grew at all.
You see a comparable example in Japan, where the Bank of Japan has a short-term interest rate target of -0.1% and a long-term target of 0%. Japan's GDP is lower today than it was in 1995, and its interest rates have been around 0% for almost that entire time.
With this information in mind, let's ask a better question: Are government interest rates a cause of GDP growth/retraction, or an effect of it?
LOL! What utter ridiculous BS. A 25% Fed fund rate would slow GDP to a crawl, actually it would be shrinking a great deal. Great Depression II. You know that. You really are a brainwashed ideologue unbounded by reality.
Go back to Post #71 and do more research on the numbers posted there. The U.S. saw GDP growth in the late 1970s and very early 1980s even when the FED rates were much higher than they are today. Not only that -- but the GDP growth rates were higher with FED rates above 5% than they've been for the last ten years when the FED rates were below 2%.
I'm not even an economist and I can understand this.
If you think a 25% fund rate would make the economy “go through the roof” then there is no hope for you. That is nutty.
It's interesting that you have nothing to say about empirical evidence that contradicts just about everything you've posted here on this thread.
“Banks cannot issue their own currency.”
They did so right up to the 1930s; they created some of the most beautiful American banknotes. Click on the first link for some bank issued currency.
IIRC they still can, but it costs them to do so whereas money creation via checkbook entry costs them next to nothing. There’s not a lot of difference between a loan officer crediting your checking account with a hundred dollars or the same bank printing a $100 bill and giving it to you.
Checkbook money costs the bank nothing and can be used for further money expansion if it’s deposited... whereas paper money can’t be used for further fractional reserve lending
https://en.wikipedia.org/wiki/National_Bank_Note
this will take you to a history of the financial panic of 1907 that led to the creation of the Fed:
https://www.federalreservehistory.org/essays/panic_of_1907
“The historically low interests rate we have now will not cause cost push inflation - they can’t.”
It finally dawned on me that you think that the inflation of the 1970s was caused by wage demands, a wage-push inflation, and of course it wasn’t.
It was a classic monetary inflation caused by an excessive growth of dollars after Nixon abrogated the Bretton Woods agreement in 1971 and broke the dollar’s last link with gold.
That inflation ended when Paul Volcker choked off credit creation with a 20% Fed funds rate, and Ronald Reagan slashed regulations that had been strangling economic growth.
Inflation is a monetary phenomenon, it is caused by a growth of the money supply that exceeds the economy’s growth rate.
High interest rates don’t cause inflation, and low interest rates don’t prevent it.
The inflation of the 1970s began with interest rates at around 4%. The double digit interest rates at the end of the ‘70s were a response to inflation, not the cause of it. Bond investors, the bond vigilantes, were demanding a return higher than the inflation rate.
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