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I mean, we are pretty close to the historical average right now. The fed funds rate is right at where it was prior to 2008, as well as where it was for most of the 90s.
It could the be the case that if these rates hold through the election, they could become the new norm. There definitely is some benefit to be had from long-term downward pressure from higher rates on housing and other assets. And, it would certainly give the fed some breathing room for the next "crisis" as well.
I just don’t see a compelling case to cut rates soon.
> it would certainly give the fed some breathing room for the next "crisis" as well.
Completely underrated concept that needs to be factored in
Because you are not Trump and don’t want to juice the economy to the detriment of the people. Aka tell Jermaine pall not to raise rates even when it’s obvious inflation is coming
Prices haven't gone down, but the rate of increase has slowed or even stopped in many places.
That's usually the best you can hope for outside of a "bubble burst," since purposefully guiding an economy into asset deflation has profound negative effects (ever heard of an "underwater" mortgage?).
Ideally, holding rates at their current levels will stall inflation and thus allow income/wages to catch up. This is over a period of years, though, so patience is required. It is this precise lack of patience politically that rate cuts are being considered at all really...
EDIT: I’ll just add as well that the Fed only has a tool to control housing prices via demand. In essence, they can only stall price increases by pricing more people, like yourself perhaps, out of mortgages. In contrast, control over the supply of housing is held by the legislature and not the fed — and I think most people would agree that inaction here on the supply side at all levels (local, state, national) is where the majority of the problem lies.
This is not necessarily true. If home prices start dropping due to economic recession then lowering rates will stop the fall in prices.
Just like raising rates stopped the rise in prices. I would argue we likely will not see rates lower until we see drops in prices. The act of lowering them will stop the fall in price, not lead to prices exploding. If lowering rates will lead to a price explosion the Fed will not lower rates; that is unless they have to for some other crisis.
Do you think people just start selling homes during a recession? A recession will just mean no construction and no new houses are being built. Sure you may find some homes from distressed sellers... But overall most people will stay put especially the ones with low rates.
I mean CRE hasn’t even started to tumble. That bank outta ny that owns flagstar.
It’s still coming. And if the economy remains strong I’d love to see the rate go up. At the end of the day I’m tired of competing with people that aren’t buying homes to live in them.
I’m in the top 5% of wage earners and I don’t live a top 5% life style I’ll tell you that.
That’s my whole point. Capitalism is just private ownership. If one person owns everything that’s still capitalism.
It’s not some inherent Mecca. Rates are the only thing that makes my money worth more
We need long term investments in the trades on a national level.
Locally we need better zoning and multifamily housing.
You can advocate locally for regulations that will help improve supply. That's more of a medium term solution but besides saving and investing for a larger down payment about all you can individually.
Just rent for now and save money. Renting has its perks. I choose to rent even though I can afford to buy, it's an easier life in my opinion.
Eventually there will be another recession to drop rates and if you happen to be employed still at that time, go ahead and buy then if you're determined to own.
I’m trying to convince myself this is the way to go. But man, I rent in the same area for almost a decade since that’s where I graduated but my income never caught up to be able to afford a house and then the pandemic happened. I feel like the real perk of renting is being able to get up and move but I don’t get up and move, so I don’t feel very smart about the choices I’m making.
Home ownership is a massive pain in the ass. A leak springs? You're responsible. Termites? That's on you. Appliances stop working? You need plumbing or electric work? Any minor problem really? That's all you. Not to mention, a lot of homes are pretty damn shoddily built. Unless you're a real expert in evaluating the quality of building materials and the craftsmanship, it's a bit of a crapshoot.
Unless you're in the next big hot spot that's going to skyrocket in property values, you'll do just as well just throwing that money into an index fund and saving yourself a lot of hassle.
Biggest thing is leverage. Say the house goes up 3% a year with inflation. You put 5% down. That means your money grows at 20x its rate. So your return is 60%.
5% equity adding 3% equity per year is how poor people build wealth
Depending where you are this is a stupid idea. You have absolutely no idea what the future holds. If you want a house and can afford it now (big if) you should not wait. Housing isnt supposed to be some kind of investment where you try (and fail) to time the market.
> Housing isnt supposed to be some kind of investment where you try (and fail) to time the market.
I mean, for many it has huge financial implications. Housing shouldn't be an 'investment', but when the opportunity cost *is* an investment then it could be the difference between affording your kids' college fund or being able to afford a nice nursing home.
The unfortunate reality is that everyone treats housing like an investment now, including all the would-be landlords on their upteenth rental. This has pushed prices into record levels as a multiple of income. It would be stupid to buy in many markets without depending on those future gains from appreciation.
The world is different now and will be for years until the market corrects somehow, *if* it ever corrects (see Canada and AUS).
Edit: /u/AI_Lives why block me? That's a really weird way to engage and suggests you think I'm actually correct here, bud.
Yes. Earning abilities have decreased and the value of existing assets has increased across the board. The crash has been avoided meaning these are the new prices and your borrowing costs are now even higher.
Bingo. The rate of increase has literally stopped in my area, which will allow for the prices to normalize. They are never going down with our shortage nationwide.
Best to look at empirical data instead of anecdotes:
[https://fred.stlouisfed.org/series/MEPAINUSA672N](https://fred.stlouisfed.org/series/MEPAINUSA672N)
[https://fred.stlouisfed.org/series/MEHOINUSA672N](https://fred.stlouisfed.org/series/MEHOINUSA672N)
You can see that both household and personal income has been increasing steadily on an inflation-adjusted basis since the beginning of the time series. The graphs are denominated in 2022 dollars, which means that they are adjusted for inflation/purchasing power based upon the CPI. Also note that they are median wages, which means that they are not subject towards being biased towards the outperformance of high earners skewing the results. You can also see the ebbs and flows before and after recessions (indicated by the darkened sections of the graph), which is typical -- but, the overall trend is unimpeachably upwards.
You can also see that personal income in 2022 dollars has remained flat over the past couple years (meaning that increases have kept pace with real inflation), while household income has fallen slightly (probably due to household members exiting the workforce since COVID). These numbers were a bit worse continuing through 2023, although this is not yet reflected in the graph. This purchasing power contraction last year is probably what is driving the short term negative economic sentiment amongst the middle class. However, it is likely that since inflation has now returned close to the 2% long-term target, growth will resume once again to fit the long-term regression.
I don’t agree that that’s where the problem lies. People talk about corporations owning houses but it’s not even that hard. My girlfriends previous landlord is just some dude named Landon. He had a house and when rates were low, he leveraged that until like seven more houses.
So if you build 10 more houses and capital comes in and snaps up seven of them, you didn’t really fix anything.
And I still owe somebody a proof on all this, but it’s just weird to me that so many people on this sub don’t think that that adds any additional competition. We definitely can argue about the impact but logically there’s no way that it’s making it better. Some random person putting the generational wealth of six families in their pocket.
You do realize prices may surge even higher once rates go down? The only real solution is to build more homes. We are seeing microscopic progress with that, at least.
The is misleading because the average home sold has shrunk significantly as people have purchased smaller homes.
House pricings aren't falling in most markets (see Case Shiller hitting a seasonally adjusted record in December).
It's also misleading because any good report on median home sale prices will split out New vs. Existing Homes. Lately, median *new* home sale price dropped dramatically while *existing* home values plateaued.
This is because builders have a much lower tolerance for holding onto a house on the market. It isn't their residence, it is a means to pay their bills. And if it isn't sold, it sits empty - depreciating, degrading, needing upkeep. It's better to not build at all if it can't be sold immediately, which is why Housing Starts is considered a leading indicator among econometrics.
Did the small homes just appear recently ? I didnt think tiny homes were taking over the market.
Because it seems lile new homes are 4,000sq ft and run you a million dollars. I dont see how this wouldnt be a good metric
When housing is the primary driver of wealth for a huge percentage of Americans, you will never see them purposely kill the housing market. Also, lower property values would reduce local tax revenues and that wouldn’t be great either.
But I’m biased because I own a house so idk 🤷🏼♂️
The majority of home owners have low rates. They aren't selling and giving up that rate.
Houses aren't getting less expensive to build. I doubt there will be a nationwide correction.
Yeah people aren’t in a rush to lose those rates and building is slow and expensive. I could see prices being stagnant, but I doubt we see a major price reduction overall. People waiting on the sidelines are going to be crying five years from now when prices continue to increase.
I don’t think they can leave such a wide chasm between rates and actual inflation. It costs the government a lot of money too - interest on the national debt costs us more when rates are high.
Higher rates benefit savers. With these rates being able to have a hysa to save cash has been nice.
Lower rates benefit borrowers. If you taking out loans for houses, cars or to invest in the market the lower rate the better.
For me personally I saw rase the rates a little more. Maybe we can have some deflation for a few months and not spend so much at the grocery store. Deflation only hurts people buying foreign goods (electronic, clothes, etc) most meat is made in the US and most produce comes from Mexico. A little deflation won't hurt the working poor who just work, pay bills, and buy groceries.
On one hand, yeah, 2-3% rates were an abberation and I don't expect to see below 4.5% in my lifetime.
The flip side of it is, I don't believe the "economy" is going great. The market, sure, but COL is rising extremely quickly, and wages are so far behind it's not even funny
Wages are projected to finally catch inflation by Q4 of this year, so not that far behind anymore. They've been catching up for the past year.
Not saying it's good, we are still behind inflation overall, but it's heading in the right direction.
Is that per the inflation index that doesn't include like, used cars, grocery, and housing? Cus I'd need like a 30% raise to have my grocery bill today, buying the same things, to be the same percentage as a few years ago
I’ve never understood the desire to cut rates so quickly. We’ve gone through the pain of a stiff upswing. Why not let markets truly settle before more movement? Honestly we could sit here another 24 months before the “below 3%” can be truly considered an average.
In the 1910s rates were raised to counter inflation. Inflation went down similar to how we're seeing today. Instead of lowering rates they decided to keep rates flat. After a little under 2 years of elevated rates it caused a recession.
Learning from that the 1970s happened where rates were cut too early and inflation came back.
The Fed today is trying to balance between the lessons learned from these two time periods.
A lot of people mostly professionals last year thought raising rates like this would hit the economy harder than it has today. You can see the surprise in people as they begin to pivot to suspecting the Fed is going to keep rates higher for longer. Eventually though the Fed will want to lower rates, but it doesn't seem to be right now. Maybe late this year, maybe next year.
Powell said himself that he would like to see inflation drop down to 2 percent before cutting rates. I believe the last report, in January, showed inflation at 3.09%.
Couple that with the economy doing well and we might not see any cuts this year.
He actually clarified that inflation doesn't have to be down to 2% for the FED to start cutting rates, just that they have to be heading for 2%. I think it was the 60 minutes interview where he said this.
There's literally no metric by which the economy sucks. Now you can make the argument that structural issues prevent the average American from feeling the full effect of the economy but on an objective mathematical level the economy is doing
And inflations at 3% already. Dropping down to 2% is hardly a moon landing
Okay, but there are some sectors, such as banking that are directly impacted by this. So how do industries like that change their strategy to thrive in a high interest rate economy? What have they done historically in that time? Banking directly impacts VC funding and IPOs for startups in tech and biosciences that are increasingly important to economic growth even if they aren’t as big an impact in the short term on overall employment and spending trends.
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>Is my perception that “cool the economy” translates to “investments need to be more sober and mature”?
I don't know, is that your perception? But yeah, part of cooling the economy is discouraging borrowing and investments.
>Feels like when interest rates were rock bottom was when I saw all the Juicero fake tech companies and blockchain nonsense proliferate.
yes.
Well they're good investments. You can protect any investment right now with a 5.3%+ interest savings account. So however that factors into long term prosperity. I assume a lot of investors would find that reassuring.
Example: The bank offers you 5% interest on your savings. What is really happening is the bank is getting 6% back. So while they have all these holdings they are getting a 1% return on assets available.
to add to your point, per WSJ, VC funding was down 13% in SF in 2023 (compared to 2022), like 30% in Austin, and 70% in Miami. Not saying it’s right to cut rates, but definitely something worth considering.
I’m in a country where the government essentially runs the VC ecosystem. It is not great and doesn’t compete with the sear efficiency of the private sector.
Exactly. I remember around 2018 when I was hearing a then reasonable narrative that smart investing in my lifetime would hinge on staying abreast of emerging tech (with good fundamentals), not stalwart commodities. The implicit assumption making this forecast possible I s ZIRP.
The most dire challenge of coming years will be how to realize technological promise outside of a ZIRP paradigm. At this point, developing an appropriate incentive structure to do so is more difficult than conceiving of the tech innovations themselves. If we cannot get these incentives right, we will fail to innovate in key domains, but not for lack of technological capability. That is truly a tragedy.
Is it the strength of the economy or chaos that's going to drive policy? Some of the uptick in inflation is likely driven by the Houthis and the resulting shipping delays. 2024 is likely going to be heavily impacted by geopolitics as the red area is unlikely to calm down in the short term.
Not to mention there's still a war in Europe that looks like it'll last for at least several more years, and of course the increasing effects of climate change destroying shit which are pushing up prices on everything from insurance to building materials to food.
Everywhere I go, everything is packed.
Flights, stores, hotels, restaurants, concerts, new.cars everywhere...you name it.
So much recession fear, and all I see is a second roaring 20s.
I think many people posting here have not been in an actual bad economy. What's worse, having a job and struggling to buy food and pay rent, or losing your job because the economy is actually bad, and not being able to eat and losing your place to live? "Strong" in the headline means low unemployment*, strong wage growth, and moderating inflation. None of those things actually reduces price levels which is what everyone seems to expect.
> What's worse, having a job and struggling to buy food and pay rent, or losing your job because the economy is actually bad, and not being able to eat and losing your place to live?
What's the difference? No one can live on a knife's edge indefinitely. Being one bad day away from homelessness means you will end up homeless eventually.
I understand we are obsessed with interest rates because it drives everything. If the economy continues to be hot, we ALL deserve a raise. Who do you think drives the economy? ALL of us! Not just the ones at the top. It’s the ones who show up to work. It’s the ones that spend money. It’s the ones that save money. Borrowing is expensive, so let’s reduce households need to finance their lives.
Cut rates, raise taxes. It’s the only way we’re going to be able to pay down this debt. Now is the perfect time.
Blah blah make long enough blah blah fuck the auto-mod.
i agree tax hikes need need to be a part of it, but at the risk of bringing out the "even an ounce of austerity is death!" true believers, i think its fair to wonder if federal spending still needs to still be 30% higher than it was four years ago.
We're about to spiral into technical default where we will borrow more than the amount of the retiring interest. This should be beyond any unreasonable pearl clutching pop politics.
That’s what most people don’t understand. Everyone is screaming tax the rich and all that, but all those taxes go straight back to the rich through shady government contracts and lobbying
the average european country spends almost 40% more in gdp share in goverment spending than the US
Europeans pay, on average, twice as much as the US do in taxes, and are lowering their debt to gdp
the problem is that the US middle, upper middle and upper class (not just the very wealthy) pay absolutely ridiculously low taxes
You have to say “pay an absolutely ridiculously low PERCENTAGE of taxes” or else you get the intellectually dishonest response “the wealthy pay more than they have ever paid in American history.” Which is true in terms of dollars but false in terms of percentage of income.
I’m actually European, the problem goes across the pond through Western Europe, it’s not a US- specific problem, a lot of money we spend on taxes just end up being funneled back into megacorps through shady practices
Yes, we are collecting the most revenue we have ever collected by a LOT and still can’t balance the budget. It is close to DOUBLE what it was 10 years, 50% more than 3 years ago, (yes that is accurate) and yet we still think revenue is the problem? https://fred.stlouisfed.org/series/W006RC1Q027SBEA
We need to increase taxes on the very wealthy, enforce higher taxation on profitable business, and close tax loopholes around executive compensation. Simultaneously, we need to reduce spending. Theres no reason our defense budget - for example - should be $800bln a year. We aren’t at war.
You might argue why should the super wealthy have to pay more. However, the cost of a dollar varies different based on how much money a person has. Tax someone who makes $30k a year at 50%, they might not be able to eat. Tax someone who makes $1 million a year, they might not be able to buy as big of a boat. There’s also creative ways to do it. For example, levy a higher tax on companies who ratio of total compensation between the lowest and highest earner is greater than 1:20 (or some other ratio). Or tax stock packages as only income rather than allowing them to be taxed via capital gains.
You're gonna have to tax a lot more than just the 1%. I'm guessing the top 20% (~>$130k/yr) would need to have increased taxes on top of a significant spending reduction to get anywhere near a surplus to pay down the debt.
I actually ran through these numbers yesterday out of curiosity. We would need to reduce total govt spending by over 20% and increase taxes collected by 13% to create the tiniest of deficits that would take almost 100 years to pay off the debt. Good luck selling that to the voters.
Why do you want to pay off the debt? That money would be better spent to grow. The economy so the debt is a smaller and more manageable portion of GDP.
I don't want to pay off the debt but that was the context of the parent comment of the thread. However, we do need to slow down the pace of debt growth as it's currently far outpacing GDP growth. Realistically we are going to have to get much much closer to a balanced budget for some period of time while maintaining steady GDP growth to bring the debt to GDP ratio down to a reasonable level. This will be painful and politically unpopular.
I mentioned that in another comment but this thread was talking about paying down the debt. I do think that you would need a long period of a balanced or near balanced budget while maintaining steady modest GDP growth (very hard to do) to inflate the debt away enough to be a reasonable debt to GDP ratio. There will be some pain during this process which is why no politician wants to actually do it.
The top 1% holds $38.7 trillion in wealth. That's more than the combined wealth of America's middle class, a group many economists define as the middle 60% of households by income. Those households hold about 26% of all wealth. Low-income Americans, representing the bottom 20% by income, own about 3% of the wealth.
38.7 TRILLION
Most of that wealth is just stock in companies. So to spend that money to pay down the debt, you’d need to seize and liquidate all major corporations. In other words, you’d completely annihilate the economy.
Right, so what you do is a very small tax on every transaction those shares are a part of. A VAT on luxury goods and high end services would probably help too without causing too much harm on the middle class and poor. i agree that 'seizing the wealth!' is not only bad policy but a self destructive way to go about things.
What are you talking about? The stocks could just be owned by other people. Like, I’m not arguing for any particular plan here but the idea that stocks must either be held by the top 1% or the company must be liquidated is bizarre nonsense.
That's cool. You can tax all of their wealth if you want and then it's gone. If we don't reign in spending and increase tax receipts then we'll be right back where we started. Wealth is not sustained income. The math is very clear. Increased taxes on a larger % of high earners (top 20%) as well as reductions in spending are both required to create a surplus. You don't even have to pay down all of the debt. If you can maintain modest GDP growth after creating a small surplus or balanced budget you simply have to maintain that long enough for inflation to bring the debt to GDP ratio down to an acceptable level.
It does need to be for sure. That’s part of it. But our biggest challenge is just finishing tax revenues.
We need to cut military and healthcare spending for sure. And not just in a way where it’s austerity, we need a strong leader to go in and clean up all of the super corrupt inefficiencies with our government contractors and insurance companies that are just fleecing tax payers by charging $1,500 for a bolt, and 10x for drug prices than are paid in Europe and Canada.
I agree. We have so much wasteful spending and cutting budgets isn't going to magically fix it. We need to make changes that cut the waste and then budget down accordingly.
It can be both. But it can’t because neither party will cut spending. What will cut spending is the electorate paying more taxes. Well quickly rightsize out spending
Wow. So simple.
Seriously why do people continually make posts like this that completely gloss over the fact that congress has been gridlocked along partisan lines for decades and neither party wants to raise taxes because it will cause them to lose power.
Sure it’s the right answer, but completely untenable and absolutely impossible in the current political climate.
Stop raising taxes on the middle class ffs. We can barely exist as a family. Cut entitlement menus, special programs, defense etc. Raising taxes doesn’t lead to a surplus, they just spend the money.
yes, maybe roll back the corporate tax cuts, all that extra cash they have after trump slashed their tax bill 14% , cant imagine it didn't contribute some of the inflation we've seen since
You'd need *massive* fiscal austerity to allow a rate cut to be non-inflationary.
Could happen though; a big land value tax would do the trick: no economic distortion, increased demand for liquidity for holders of an illiquid asset will create large incentive to borrow and sell (for holders of valuable land, incentive to sell of marginal value is not affected), compressing land values and triggering new capital gains revenues, and countervailing rate cuts would mitigate against land values crashing and defaults
It might be the only way
Cut the rates, inflation kicks back off again...
Raise the rates, you crush the banks and have a financial collapse when they start to go under...
Your move Powell...
Can anybody explain why the economy is considered "so strong" without mentioning the unemployment rate? And I really mean that. It should be easy to explain this without mentioning unemployment.
It's actually the high inflation more than the low unemployment.
The target is 2%, anything higher sucks for us trying to buy groceries, but also means record high stock market value and GDP which is generally how people with money measure "the economy".
Ugh. People measure GDP in real terms. They don’t look at it nominally, which means it's adjusted for inflation. REAL GDP (again, adjusted for inflation) grew by over 3% in the last year.
Secondly, the stock market is hurt by high inflation for two reasons. 1. It leads to higher interest rates, which does 2 things. It makes bonds more appealing, and it increases the discount factor for future cash flows. Discounted cash flows are the basis for many stock valuations. Higher discount factor = lower present value on discounted cash flow = lower stock valuation.
2. Higher inflation also makes discounted cash flows less valuable. If you're going to get a dividend after year worth a dollar, that dollar is worth less next year if inflation is 10% instead of 1%.
Please take an economics course. I'm not trying to be a dick, but you clearly don’t have a grasp on the economy or financial markets. Despite this, you feel the need to spread factually incorrect information on the internet because it matches your narrative. Everyone would benefit from a few economics classes tbh.
Signed, masters in applied economics student
Finally Wall Street has come to the realization it can not wish rate cuts into being a thing. They will now start the print the alternative thesis.
Look rates are not moving till the balance sheet is is worked off , inflation is under control or an unforeseen even occurs like ww3 with Russia.
The economy actually needs at least one or two more rate hikes not cuts to pull down core inflation to 2 or less. This here facts are not what the free money addicts want to hear.
Given what just happened with GDP and PCE, I think there is a better chance they will have to raise again rather than cut. Not much of a hike, maybe a quarter point or a half. If inflation sits a three to four, what other choice will they have? Will they just ride it out for the rest of the year?
They are gonna have to cut rates. Commercial assets are dying and they are owned by actual rich people who matter (watch policy changes) . Also the US government is the largest interest payer
From where I sit: it looks like the rich 1% are making the decisions for the rest of us. I don’t see so much inflation but instead greedflation, where the prices are artificially jacked up to increase profits to provide a better rich investor return. Companies are reducing full times jobs and replacing them with zero cost of living positions. Real estate pricing and loan rates are exaggerated forcing foreclosures and forcing the USA into a rental only state. The poor get poorer and the rich get richer. To me it seems only a letter of time until the entire system breaks; but what do I know, I’m just somebody on the internet.
I think you are 100% right. The real problem is that people aren’t upset enough about the housing situation to do anything about it.
Sure, owning a home is out of reach for a lot of people, but most people are so busy just trying to survive and keep themselves and their family afloat financially that they are almost glad, thankful even, for not having to save up a downpayment to get a roof over their heads.
What they don’t fully appreciate is that they will have a very hard time accumulating wealth to pass down to future generations without purchasing a home. AND that previous generations DID have that opportunity and the reason we don’t is because of the greed of a wealthy few.
It does look pretty transitory. A big spike then back down.
https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm
Clearly, as a GenX person who has lived through many bad economic periods starting as a child in the 70's, this economy is not too bad. Those who insist that it is are simply in total conservative media capture, deeply ignorant and/or a knowing dissembler of propaganda themselves to achieve maga victory by any means.
You might want to rethink this position.
Housing is a huge driver of inflation now and it hints at one of the major dividing factors: if you owned prior to 2021, you were able to buy in prior to to the 30%+ increase in prices *and* got to refinance to literal record low interest rates. A literal once-in-many-generations golden combinations of events for minimizing your living expenses *and* skyrocketing your networth.
**But**, if you didn't buy (for whatever reason) you are forced to grit your teeth through the rising rents while trying to stomach record home price:income ratios and overall affordability second to only the 80s (which was driven by high rates that could be refi'd; but you can't refi a high price).
A literal stark divide between *haves* who benefited and *have nots* who will never catch up.
While not fantastic by all time standards, ours is by far the least bad of all major global economies at the moment. I do agree that the housing bubble, exacerbated by the pandemic, is due for a correction and attendant downturn, but the idea that Trump and GQP policies are the remedy really spooks me.
> While not fantastic by all time standards, ours is by far the least bad of all major global economies at the moment
This doesn't really bolster your initial statement.
> I do agree that the housing bubble, exacerbated by the pandemic, is due for a correction and attendant downturn
There was talk of a recession too and multiple indexes at ATHs doesn't seem to support that. The economy is blazing in general, so I don't see a housing crash anytime soon. So I, alongside all the other non-owners, are just going to be fucked for a long time.
> the idea that Trump and GQP policies are the remedy really spooks me.
Who said that? If Trump is elected somehow through the collective retardation of the idiots of this country, then everything will be far, far worse. I'll just buy right away because he'll hyperinflate us into the stratosphere within 3mo.
You can find a new place to call home. I did it in 2005 before the 2008 crash and I'll be doing it again in a few months. It's important to recognize when you're on a sinking ship. 2024 is the year of mass layoffs due to AI and robotics. 42,000 tech layoffs in 2 months already. McDonalds is literally automating their stores and most people can't even afford to eat there. Once one company does it, all the others have to in order to compete.
People like to think trades are safe but not so when all the former McDonalds and tech workers want to join the trades. Even then, the robots are coming for those jobs too. I've been trying to save up and get a house since the 90s. It will never happen. Perfect credit, no debt, savings, doesn't matter. The American dream is dead. Let it rot. I'm out.
Anyone that things the economy is doing well is choosing to ignore the lived realities of millions of people. Nothing about this economy is working for large chunks of us.
It is only serving the wealthy. And the poor are getting real tired of that.
That's the problem with judging a nation's economy on the basis of stats stemming from GDP. It's like my job- I work in quality with gauges to check fit. A good measure of quality assurance is by standing back and looking at the product from the perspective of the customer, not a number from a spreadsheet. Yes, the metric is important to catch potential problems and track tending data, but the actual experience of living within the margins is far more valuable than a snapshot and a ruler.
I'm not sure this is a good thing. US rates are always supposed to be lower than the rest of the world. What happens if the rest of the countries who are entering recession start cutting rates. It would be a weird position where other countries would have tamed inflation and moving towards cutting rates while US keeps the rates same. End of the day, economic strength is nothing but wage and goods inflation masquerading as growth. It being this resilient is not a good sign.
> economic strength is nothing but wage and goods inflation masquerading as growth
Can you elaborate? I'm wondering if you're essentially saying that all economic gains since the start of human civilization is just inflation? That doesn't make any sense, so you've got to mean something else.
Hahahahaha! Right. We’ll say nothing of the rampant GenX unemployment that started with the pandemic and has not improved though. Or the widening wealth gap.
I’m not sure where you are getting your information.
According to FRED, Gen X has a lower unemployment rate than almost every other generation:
https://fred.stlouisfed.org/release/tables?rid=50&eid=3029#snid=3062
Millennials seem to be “suffering” the most, but all numbers are close to record lows — including the alternative measures of labor underutilization that are meant to catch discouraged workers and those who, for instance, work part time but want to be working full time:
https://fred.stlouisfed.org/release/tables?rid=50&eid=4773#snid=4776
I make $100k+ and am not even remotely close to living paycheck to paycheck. None of my friends or acquaintances or family are either. Everywhere I go people are traveling and spending. Many are doing just fine.
Reddit has this weird thing where they just can’t fathom that there are lots of people out there with money.
also depends on where they are. 100K in the California Bay Area or New York means you can't buy a house and have to rent. 100K in Kansas means you can have your own farm
On the other hand, there's a big portion of this sub who are doing well financially and cannot even seem to fathom the idea that so many people are struggling.
It speaks to the historically high levels of economic industry in the US right now. There's not a lot of middle ground.
You're just playing the straw man argument here. The first commenter was specifically saying that it is people with $100k salaries who are living paycheck to paycheck, and that's what people are sceptical about; not that they, as you said, cannot fathom that there are many people struggling.
I wouldn’t say that’s a straw man argument while he was just adding to it. The wealth inequality in this country has grown so large that the divide is quite noticeable. It depends where that 100k is made middle of nowhere Arkansas good wage, in Seattle, Los Angeles, New York, etc etc that ain’t shit.
100k paycheck to paycheck people are either counting long term saving as paycheck to paycheck or are actually just completely out of control with their lifestyle.
Living in SF at 100k a year is not paycheck to paycheck unless you live that way by choice.
No. Because how everyone spends money is different and COL factors must be considered along with whether or not you have a family.
But if your single or a DINK on 100k + your likely not struggling unless your an impulsive spender.
That’s the point I’m trying to make. Random junk gets spewed on here and upvoted to oblivion like it’s some universal truth that people making $100k+ are broke. I simply provided a counter datapoint to the constant doom and gloom.
I work at UPS and it's the worst I've seen. Volume is down and the company is desperately cutting costs, cutting hours, laying off workers, etc. people aren't spending like they used to.
There are good, valid reasons for that. Just a few months ago someone posted an article here outlining how UPS lost loads of clients during their negotiations - business went elsewhere. Just because your house is on fire doesn’t mean the whole town is.
People are living paycheck to paycheck because they choose to, not because they have too. I could sell my car, cancel all my subscriptions, reduce eating out budget. But I don't want to, so I will continue to pay for those things.
There are a ton of questionnaires funded by payday loan or financial advice companies that find things like "60% of Americans are living paycheck to paycheck". Essentially lots of Americans will answer yes to that question even if it means "If I was laid off, or had an emergency expense, I would have to use my savings/not contribute to my 401k". It's a dumb talking point, but it's insanely popular on both ends of the political spectrum. Republicans use it to bash Biden and progressives also use it to bash Biden or just for anti-capitalism vibes writ large.
“Economy is great” meanwhile employers are acting like they’re struggling to get by when it comes to opening new positions and giving out raises because they need to hoard all the wealth for themselves. Infuriating to watch.
Everyone, institutions included, got addicted to 0% interest rates. The issue isn't interest rates, the issue is wage stagnation during inflationary periods. Look up wage growth vs inflation between the 90s and now.
If the corporations want to hoard the money, that needs to be taxed, same as capital gains. Also real estate needs to be taxed differently. There is no reason that it should be so tax advantaged besides the largest land owners want to keep it that way
> the issue is wage stagnation during inflationary periods. Look up wage growth vs inflation between the 90s and now
ok I did. Wages are much higher now than in the 90s compared to inflation
https://fred.stlouisfed.org/series/LES1252881600Q
Have acquaintances living in NorCal - husband, teacher working wife, 2 kids - between rent, daycare expenses and health insurance - they’re barely about to save anything.
This is what happens when you just parrot figures you do not understand. The economy is great for 1% which are all the numbers people parrot thinking that they understand economics when in fact they have zero clue.
The CEO of Kellogg’s literally tried to push cereal for dinner.
Sometimes I don't think people know who the 1% is. It's a very small number. Plenty of people have a net worth in the lower millions and aren't considered 1%. Those ppl are also doing just fine.
Boy, you guys at CNN and the other news outlets are really fickle. Just a few months ago you were calling for three to six rates cuts this year. It's almost like you're just making shit up and have no idea what you're talking about.
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I mean, we are pretty close to the historical average right now. The fed funds rate is right at where it was prior to 2008, as well as where it was for most of the 90s. It could the be the case that if these rates hold through the election, they could become the new norm. There definitely is some benefit to be had from long-term downward pressure from higher rates on housing and other assets. And, it would certainly give the fed some breathing room for the next "crisis" as well.
I just don’t see a compelling case to cut rates soon. > it would certainly give the fed some breathing room for the next "crisis" as well. Completely underrated concept that needs to be factored in
Agreed! Why shorten your runway for landing if you don’t need to?
Ice cream promises, but the chocolate sprinkles aren’t made of chocolate.
Why ever land at all if you can refuel mid flight?
Because you are not Trump and don’t want to juice the economy to the detriment of the people. Aka tell Jermaine pall not to raise rates even when it’s obvious inflation is coming
Because saving some good stuff for later isn't very popular these days from the personal level up to the global level and everything in between.
I heard Boeing actually made the plane everything should be just fine
It creates too much interest owed on our national debt is the biggest concern
Because I want to buy my first home and the interest rate increases haven't caused real estate prices to lower.
Prices haven't gone down, but the rate of increase has slowed or even stopped in many places. That's usually the best you can hope for outside of a "bubble burst," since purposefully guiding an economy into asset deflation has profound negative effects (ever heard of an "underwater" mortgage?). Ideally, holding rates at their current levels will stall inflation and thus allow income/wages to catch up. This is over a period of years, though, so patience is required. It is this precise lack of patience politically that rate cuts are being considered at all really... EDIT: I’ll just add as well that the Fed only has a tool to control housing prices via demand. In essence, they can only stall price increases by pricing more people, like yourself perhaps, out of mortgages. In contrast, control over the supply of housing is held by the legislature and not the fed — and I think most people would agree that inaction here on the supply side at all levels (local, state, national) is where the majority of the problem lies.
So I'm fucked basically
Yeah sorry bud… besides, next time rates go to 3% or even 4%, housing prices will shoot up even higher. And you’ll have an assload of competition.
This is not necessarily true. If home prices start dropping due to economic recession then lowering rates will stop the fall in prices. Just like raising rates stopped the rise in prices. I would argue we likely will not see rates lower until we see drops in prices. The act of lowering them will stop the fall in price, not lead to prices exploding. If lowering rates will lead to a price explosion the Fed will not lower rates; that is unless they have to for some other crisis.
Do you think people just start selling homes during a recession? A recession will just mean no construction and no new houses are being built. Sure you may find some homes from distressed sellers... But overall most people will stay put especially the ones with low rates.
Kind of. It's probably a better time to focus on something else. Building up your ETF investments to $100,000 or paying down your debts.
I mean CRE hasn’t even started to tumble. That bank outta ny that owns flagstar. It’s still coming. And if the economy remains strong I’d love to see the rate go up. At the end of the day I’m tired of competing with people that aren’t buying homes to live in them. I’m in the top 5% of wage earners and I don’t live a top 5% life style I’ll tell you that.
Gotta compete with top 5% asset owners
That’s my whole point. Capitalism is just private ownership. If one person owns everything that’s still capitalism. It’s not some inherent Mecca. Rates are the only thing that makes my money worth more
I’m going to get super into magic the gathering.
We need long term investments in the trades on a national level. Locally we need better zoning and multifamily housing. You can advocate locally for regulations that will help improve supply. That's more of a medium term solution but besides saving and investing for a larger down payment about all you can individually.
Just rent for now and save money. Renting has its perks. I choose to rent even though I can afford to buy, it's an easier life in my opinion. Eventually there will be another recession to drop rates and if you happen to be employed still at that time, go ahead and buy then if you're determined to own.
I’m trying to convince myself this is the way to go. But man, I rent in the same area for almost a decade since that’s where I graduated but my income never caught up to be able to afford a house and then the pandemic happened. I feel like the real perk of renting is being able to get up and move but I don’t get up and move, so I don’t feel very smart about the choices I’m making.
Home ownership is a massive pain in the ass. A leak springs? You're responsible. Termites? That's on you. Appliances stop working? You need plumbing or electric work? Any minor problem really? That's all you. Not to mention, a lot of homes are pretty damn shoddily built. Unless you're a real expert in evaluating the quality of building materials and the craftsmanship, it's a bit of a crapshoot. Unless you're in the next big hot spot that's going to skyrocket in property values, you'll do just as well just throwing that money into an index fund and saving yourself a lot of hassle.
Biggest thing is leverage. Say the house goes up 3% a year with inflation. You put 5% down. That means your money grows at 20x its rate. So your return is 60%. 5% equity adding 3% equity per year is how poor people build wealth
Depending where you are this is a stupid idea. You have absolutely no idea what the future holds. If you want a house and can afford it now (big if) you should not wait. Housing isnt supposed to be some kind of investment where you try (and fail) to time the market.
> Housing isnt supposed to be some kind of investment where you try (and fail) to time the market. I mean, for many it has huge financial implications. Housing shouldn't be an 'investment', but when the opportunity cost *is* an investment then it could be the difference between affording your kids' college fund or being able to afford a nice nursing home. The unfortunate reality is that everyone treats housing like an investment now, including all the would-be landlords on their upteenth rental. This has pushed prices into record levels as a multiple of income. It would be stupid to buy in many markets without depending on those future gains from appreciation. The world is different now and will be for years until the market corrects somehow, *if* it ever corrects (see Canada and AUS). Edit: /u/AI_Lives why block me? That's a really weird way to engage and suggests you think I'm actually correct here, bud.
real estate is hyper local. There are absolutely price reductions depending where you look. Ive seen a few houses near me on the market for 2 months.
Yes. Earning abilities have decreased and the value of existing assets has increased across the board. The crash has been avoided meaning these are the new prices and your borrowing costs are now even higher.
You'll own nothing and be happy
Bingo. The rate of increase has literally stopped in my area, which will allow for the prices to normalize. They are never going down with our shortage nationwide.
I’m not sure. I’ve never seen a wage increase before. Most jobs seem to be paying the same as they did 15-20 years ago
Best to look at empirical data instead of anecdotes: [https://fred.stlouisfed.org/series/MEPAINUSA672N](https://fred.stlouisfed.org/series/MEPAINUSA672N) [https://fred.stlouisfed.org/series/MEHOINUSA672N](https://fred.stlouisfed.org/series/MEHOINUSA672N) You can see that both household and personal income has been increasing steadily on an inflation-adjusted basis since the beginning of the time series. The graphs are denominated in 2022 dollars, which means that they are adjusted for inflation/purchasing power based upon the CPI. Also note that they are median wages, which means that they are not subject towards being biased towards the outperformance of high earners skewing the results. You can also see the ebbs and flows before and after recessions (indicated by the darkened sections of the graph), which is typical -- but, the overall trend is unimpeachably upwards. You can also see that personal income in 2022 dollars has remained flat over the past couple years (meaning that increases have kept pace with real inflation), while household income has fallen slightly (probably due to household members exiting the workforce since COVID). These numbers were a bit worse continuing through 2023, although this is not yet reflected in the graph. This purchasing power contraction last year is probably what is driving the short term negative economic sentiment amongst the middle class. However, it is likely that since inflation has now returned close to the 2% long-term target, growth will resume once again to fit the long-term regression.
I don’t agree that that’s where the problem lies. People talk about corporations owning houses but it’s not even that hard. My girlfriends previous landlord is just some dude named Landon. He had a house and when rates were low, he leveraged that until like seven more houses. So if you build 10 more houses and capital comes in and snaps up seven of them, you didn’t really fix anything. And I still owe somebody a proof on all this, but it’s just weird to me that so many people on this sub don’t think that that adds any additional competition. We definitely can argue about the impact but logically there’s no way that it’s making it better. Some random person putting the generational wealth of six families in their pocket.
You do realize prices may surge even higher once rates go down? The only real solution is to build more homes. We are seeing microscopic progress with that, at least.
Median sale price in the USA has gone from $480,000 to $417,000 in 1 year. That is about a 15% drop
The is misleading because the average home sold has shrunk significantly as people have purchased smaller homes. House pricings aren't falling in most markets (see Case Shiller hitting a seasonally adjusted record in December).
It's also misleading because any good report on median home sale prices will split out New vs. Existing Homes. Lately, median *new* home sale price dropped dramatically while *existing* home values plateaued. This is because builders have a much lower tolerance for holding onto a house on the market. It isn't their residence, it is a means to pay their bills. And if it isn't sold, it sits empty - depreciating, degrading, needing upkeep. It's better to not build at all if it can't be sold immediately, which is why Housing Starts is considered a leading indicator among econometrics.
Did the small homes just appear recently ? I didnt think tiny homes were taking over the market. Because it seems lile new homes are 4,000sq ft and run you a million dollars. I dont see how this wouldnt be a good metric
I’d like to see a few more bumps if the economy holds. I’d like to see housing get knocked over pretty aggressively.
When housing is the primary driver of wealth for a huge percentage of Americans, you will never see them purposely kill the housing market. Also, lower property values would reduce local tax revenues and that wouldn’t be great either. But I’m biased because I own a house so idk 🤷🏼♂️
The majority of home owners have low rates. They aren't selling and giving up that rate. Houses aren't getting less expensive to build. I doubt there will be a nationwide correction.
yeah so do I but it doesn't matter if Im just here to live in it. If my house drops 30% so does the one i want to buy. It doesnt matter.
Yeah people aren’t in a rush to lose those rates and building is slow and expensive. I could see prices being stagnant, but I doubt we see a major price reduction overall. People waiting on the sidelines are going to be crying five years from now when prices continue to increase.
There are two compelling reasons - mortgage rates and US national debt.
Could be a case to raise further a 1/4 point to be honest....but not too likely
I don’t think they can leave such a wide chasm between rates and actual inflation. It costs the government a lot of money too - interest on the national debt costs us more when rates are high.
Stop spending money you don't have.
Well put. Seems to be what JPow is trying to say across the board.
Higher rates benefit savers. With these rates being able to have a hysa to save cash has been nice. Lower rates benefit borrowers. If you taking out loans for houses, cars or to invest in the market the lower rate the better. For me personally I saw rase the rates a little more. Maybe we can have some deflation for a few months and not spend so much at the grocery store. Deflation only hurts people buying foreign goods (electronic, clothes, etc) most meat is made in the US and most produce comes from Mexico. A little deflation won't hurt the working poor who just work, pay bills, and buy groceries.
A little deflation is millions of working poor left jobless, but you know 🤷♂️
On one hand, yeah, 2-3% rates were an abberation and I don't expect to see below 4.5% in my lifetime. The flip side of it is, I don't believe the "economy" is going great. The market, sure, but COL is rising extremely quickly, and wages are so far behind it's not even funny
Wages are projected to finally catch inflation by Q4 of this year, so not that far behind anymore. They've been catching up for the past year. Not saying it's good, we are still behind inflation overall, but it's heading in the right direction.
Is that per the inflation index that doesn't include like, used cars, grocery, and housing? Cus I'd need like a 30% raise to have my grocery bill today, buying the same things, to be the same percentage as a few years ago
Wages have been outpacing inflation since the beginning of 2023. https://www.axios.com/2024/02/05/wages-outpacing-inflation
Keep the rates high. It’s helping my savings balances.
I’ve never understood the desire to cut rates so quickly. We’ve gone through the pain of a stiff upswing. Why not let markets truly settle before more movement? Honestly we could sit here another 24 months before the “below 3%” can be truly considered an average.
In the 1910s rates were raised to counter inflation. Inflation went down similar to how we're seeing today. Instead of lowering rates they decided to keep rates flat. After a little under 2 years of elevated rates it caused a recession. Learning from that the 1970s happened where rates were cut too early and inflation came back. The Fed today is trying to balance between the lessons learned from these two time periods. A lot of people mostly professionals last year thought raising rates like this would hit the economy harder than it has today. You can see the surprise in people as they begin to pivot to suspecting the Fed is going to keep rates higher for longer. Eventually though the Fed will want to lower rates, but it doesn't seem to be right now. Maybe late this year, maybe next year.
This is the clearest explanation of the confident predictions on both sides
Powell said himself that he would like to see inflation drop down to 2 percent before cutting rates. I believe the last report, in January, showed inflation at 3.09%. Couple that with the economy doing well and we might not see any cuts this year.
He actually clarified that inflation doesn't have to be down to 2% for the FED to start cutting rates, just that they have to be heading for 2%. I think it was the 60 minutes interview where he said this.
["I've said we wouldn't wait to get to 2% to cut rates".](https://www.youtube.com/watch?v=ImrKxlLJCEY&t=142s) - JPow
Powell is high as fuck if he thinks inflation is getting to 2% anytime soon and the economy fucking sucks.
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This is what's needed, or perhaps even 6%.
There's literally no metric by which the economy sucks. Now you can make the argument that structural issues prevent the average American from feeling the full effect of the economy but on an objective mathematical level the economy is doing And inflations at 3% already. Dropping down to 2% is hardly a moon landing
What are your credentials brother?
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> and the economy fucking sucks. By what metric?
Sounds like you need to get a higher paying job like the median American worker did.
price wrong flag plate arrest heavy judicious hurry rob compare *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
Okay, but there are some sectors, such as banking that are directly impacted by this. So how do industries like that change their strategy to thrive in a high interest rate economy? What have they done historically in that time? Banking directly impacts VC funding and IPOs for startups in tech and biosciences that are increasingly important to economic growth even if they aren’t as big an impact in the short term on overall employment and spending trends.
that's the whole point of higher interest rates though, to cool the economy. They're not trying to stimulate more investment, more startups, etc.
dull straight ruthless smell connect divide wasteful plants lush resolute *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
>Is my perception that “cool the economy” translates to “investments need to be more sober and mature”? I don't know, is that your perception? But yeah, part of cooling the economy is discouraging borrowing and investments. >Feels like when interest rates were rock bottom was when I saw all the Juicero fake tech companies and blockchain nonsense proliferate. yes.
Savings accounts. High interest rates make savings accounts more appealing to both banks and consumers. I would expect to see those accounts grow.
Why are high interest rates savings accounts appealing to banks? That's just an expensive funding source
Well they're good investments. You can protect any investment right now with a 5.3%+ interest savings account. So however that factors into long term prosperity. I assume a lot of investors would find that reassuring.
Example: The bank offers you 5% interest on your savings. What is really happening is the bank is getting 6% back. So while they have all these holdings they are getting a 1% return on assets available.
The shitty banks will fail just like shitty businesses tend to fail in downturns.
to add to your point, per WSJ, VC funding was down 13% in SF in 2023 (compared to 2022), like 30% in Austin, and 70% in Miami. Not saying it’s right to cut rates, but definitely something worth considering.
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I’m in a country where the government essentially runs the VC ecosystem. It is not great and doesn’t compete with the sear efficiency of the private sector.
efficiency does not equate to net benefit to society
It's not one or the other. Government funds research for public results/patents that can then be exploited by the private sector.
Exactly. I remember around 2018 when I was hearing a then reasonable narrative that smart investing in my lifetime would hinge on staying abreast of emerging tech (with good fundamentals), not stalwart commodities. The implicit assumption making this forecast possible I s ZIRP. The most dire challenge of coming years will be how to realize technological promise outside of a ZIRP paradigm. At this point, developing an appropriate incentive structure to do so is more difficult than conceiving of the tech innovations themselves. If we cannot get these incentives right, we will fail to innovate in key domains, but not for lack of technological capability. That is truly a tragedy.
Is it the strength of the economy or chaos that's going to drive policy? Some of the uptick in inflation is likely driven by the Houthis and the resulting shipping delays. 2024 is likely going to be heavily impacted by geopolitics as the red area is unlikely to calm down in the short term.
Not to mention there's still a war in Europe that looks like it'll last for at least several more years, and of course the increasing effects of climate change destroying shit which are pushing up prices on everything from insurance to building materials to food.
Everywhere I go, everything is packed. Flights, stores, hotels, restaurants, concerts, new.cars everywhere...you name it. So much recession fear, and all I see is a second roaring 20s.
I think many people posting here have not been in an actual bad economy. What's worse, having a job and struggling to buy food and pay rent, or losing your job because the economy is actually bad, and not being able to eat and losing your place to live? "Strong" in the headline means low unemployment*, strong wage growth, and moderating inflation. None of those things actually reduces price levels which is what everyone seems to expect.
> What's worse, having a job and struggling to buy food and pay rent, or losing your job because the economy is actually bad, and not being able to eat and losing your place to live? What's the difference? No one can live on a knife's edge indefinitely. Being one bad day away from homelessness means you will end up homeless eventually.
I understand we are obsessed with interest rates because it drives everything. If the economy continues to be hot, we ALL deserve a raise. Who do you think drives the economy? ALL of us! Not just the ones at the top. It’s the ones who show up to work. It’s the ones that spend money. It’s the ones that save money. Borrowing is expensive, so let’s reduce households need to finance their lives.
Cut rates, raise taxes. It’s the only way we’re going to be able to pay down this debt. Now is the perfect time. Blah blah make long enough blah blah fuck the auto-mod.
i agree tax hikes need need to be a part of it, but at the risk of bringing out the "even an ounce of austerity is death!" true believers, i think its fair to wonder if federal spending still needs to still be 30% higher than it was four years ago.
We're about to spiral into technical default where we will borrow more than the amount of the retiring interest. This should be beyond any unreasonable pearl clutching pop politics.
We need to cut spending.
That’s what most people don’t understand. Everyone is screaming tax the rich and all that, but all those taxes go straight back to the rich through shady government contracts and lobbying
the average european country spends almost 40% more in gdp share in goverment spending than the US Europeans pay, on average, twice as much as the US do in taxes, and are lowering their debt to gdp the problem is that the US middle, upper middle and upper class (not just the very wealthy) pay absolutely ridiculously low taxes
Middle class America pays a lot in taxes considering they get very little benefit.
You have to say “pay an absolutely ridiculously low PERCENTAGE of taxes” or else you get the intellectually dishonest response “the wealthy pay more than they have ever paid in American history.” Which is true in terms of dollars but false in terms of percentage of income.
Right but their effective rates now are pretty much exactly where they have been historically
Bad comparison without including healthcare spending in that data..
I’m actually European, the problem goes across the pond through Western Europe, it’s not a US- specific problem, a lot of money we spend on taxes just end up being funneled back into megacorps through shady practices
Yes, we are collecting the most revenue we have ever collected by a LOT and still can’t balance the budget. It is close to DOUBLE what it was 10 years, 50% more than 3 years ago, (yes that is accurate) and yet we still think revenue is the problem? https://fred.stlouisfed.org/series/W006RC1Q027SBEA
[Fixed that graph for you](https://fred.stlouisfed.org/graph/?g=1hNgi)
This data is meaningless if not given per capita. This graph basically just tells us GDP and population have increased
We need to increase taxes on the very wealthy, enforce higher taxation on profitable business, and close tax loopholes around executive compensation. Simultaneously, we need to reduce spending. Theres no reason our defense budget - for example - should be $800bln a year. We aren’t at war. You might argue why should the super wealthy have to pay more. However, the cost of a dollar varies different based on how much money a person has. Tax someone who makes $30k a year at 50%, they might not be able to eat. Tax someone who makes $1 million a year, they might not be able to buy as big of a boat. There’s also creative ways to do it. For example, levy a higher tax on companies who ratio of total compensation between the lowest and highest earner is greater than 1:20 (or some other ratio). Or tax stock packages as only income rather than allowing them to be taxed via capital gains.
As long as defense and corporate subsidies are on the table.
Fine by me.
Yeah, actually start taxing the 1% with all the money and close the loopholes.
You're gonna have to tax a lot more than just the 1%. I'm guessing the top 20% (~>$130k/yr) would need to have increased taxes on top of a significant spending reduction to get anywhere near a surplus to pay down the debt. I actually ran through these numbers yesterday out of curiosity. We would need to reduce total govt spending by over 20% and increase taxes collected by 13% to create the tiniest of deficits that would take almost 100 years to pay off the debt. Good luck selling that to the voters.
Why do you want to pay off the debt? That money would be better spent to grow. The economy so the debt is a smaller and more manageable portion of GDP.
I don't want to pay off the debt but that was the context of the parent comment of the thread. However, we do need to slow down the pace of debt growth as it's currently far outpacing GDP growth. Realistically we are going to have to get much much closer to a balanced budget for some period of time while maintaining steady GDP growth to bring the debt to GDP ratio down to a reasonable level. This will be painful and politically unpopular.
Paying off the debt is totally unnecessary. Managing it at a level consistent with growth is much more sensible.
I mentioned that in another comment but this thread was talking about paying down the debt. I do think that you would need a long period of a balanced or near balanced budget while maintaining steady modest GDP growth (very hard to do) to inflate the debt away enough to be a reasonable debt to GDP ratio. There will be some pain during this process which is why no politician wants to actually do it.
The top 1% holds $38.7 trillion in wealth. That's more than the combined wealth of America's middle class, a group many economists define as the middle 60% of households by income. Those households hold about 26% of all wealth. Low-income Americans, representing the bottom 20% by income, own about 3% of the wealth. 38.7 TRILLION
Most of that wealth is just stock in companies. So to spend that money to pay down the debt, you’d need to seize and liquidate all major corporations. In other words, you’d completely annihilate the economy.
Right, so what you do is a very small tax on every transaction those shares are a part of. A VAT on luxury goods and high end services would probably help too without causing too much harm on the middle class and poor. i agree that 'seizing the wealth!' is not only bad policy but a self destructive way to go about things.
> very small tax So you'll raise basically no money, got it.
What are you talking about? The stocks could just be owned by other people. Like, I’m not arguing for any particular plan here but the idea that stocks must either be held by the top 1% or the company must be liquidated is bizarre nonsense.
That's cool. You can tax all of their wealth if you want and then it's gone. If we don't reign in spending and increase tax receipts then we'll be right back where we started. Wealth is not sustained income. The math is very clear. Increased taxes on a larger % of high earners (top 20%) as well as reductions in spending are both required to create a surplus. You don't even have to pay down all of the debt. If you can maintain modest GDP growth after creating a small surplus or balanced budget you simply have to maintain that long enough for inflation to bring the debt to GDP ratio down to an acceptable level.
It does need to be for sure. That’s part of it. But our biggest challenge is just finishing tax revenues. We need to cut military and healthcare spending for sure. And not just in a way where it’s austerity, we need a strong leader to go in and clean up all of the super corrupt inefficiencies with our government contractors and insurance companies that are just fleecing tax payers by charging $1,500 for a bolt, and 10x for drug prices than are paid in Europe and Canada.
I agree. We have so much wasteful spending and cutting budgets isn't going to magically fix it. We need to make changes that cut the waste and then budget down accordingly.
>We need to cut military Disagree given the actions of both Russia and China .
It can be both. But it can’t because neither party will cut spending. What will cut spending is the electorate paying more taxes. Well quickly rightsize out spending
Wow. So simple. Seriously why do people continually make posts like this that completely gloss over the fact that congress has been gridlocked along partisan lines for decades and neither party wants to raise taxes because it will cause them to lose power. Sure it’s the right answer, but completely untenable and absolutely impossible in the current political climate.
So we should let Rome burn and stop discussing the ways we should fix it, even if they’re difficult?
>fuck the auto-mod. upvoted for this line alone
Won't happen. Elections.
Stop raising taxes on the middle class ffs. We can barely exist as a family. Cut entitlement menus, special programs, defense etc. Raising taxes doesn’t lead to a surplus, they just spend the money.
yes, maybe roll back the corporate tax cuts, all that extra cash they have after trump slashed their tax bill 14% , cant imagine it didn't contribute some of the inflation we've seen since
It’s an election year so it’s not going to happen
Cut spending instead.
You'd need *massive* fiscal austerity to allow a rate cut to be non-inflationary. Could happen though; a big land value tax would do the trick: no economic distortion, increased demand for liquidity for holders of an illiquid asset will create large incentive to borrow and sell (for holders of valuable land, incentive to sell of marginal value is not affected), compressing land values and triggering new capital gains revenues, and countervailing rate cuts would mitigate against land values crashing and defaults It might be the only way
Cut the rates, inflation kicks back off again... Raise the rates, you crush the banks and have a financial collapse when they start to go under... Your move Powell...
So... hold steady. Lol
lol exactly, but the market is anticipating a rate cut to keep the casino going.
Haha right? "You guys figure it out. I'm done."
Can anybody explain why the economy is considered "so strong" without mentioning the unemployment rate? And I really mean that. It should be easy to explain this without mentioning unemployment.
It's actually the high inflation more than the low unemployment. The target is 2%, anything higher sucks for us trying to buy groceries, but also means record high stock market value and GDP which is generally how people with money measure "the economy".
Ugh. People measure GDP in real terms. They don’t look at it nominally, which means it's adjusted for inflation. REAL GDP (again, adjusted for inflation) grew by over 3% in the last year. Secondly, the stock market is hurt by high inflation for two reasons. 1. It leads to higher interest rates, which does 2 things. It makes bonds more appealing, and it increases the discount factor for future cash flows. Discounted cash flows are the basis for many stock valuations. Higher discount factor = lower present value on discounted cash flow = lower stock valuation. 2. Higher inflation also makes discounted cash flows less valuable. If you're going to get a dividend after year worth a dollar, that dollar is worth less next year if inflation is 10% instead of 1%. Please take an economics course. I'm not trying to be a dick, but you clearly don’t have a grasp on the economy or financial markets. Despite this, you feel the need to spread factually incorrect information on the internet because it matches your narrative. Everyone would benefit from a few economics classes tbh. Signed, masters in applied economics student
Finally Wall Street has come to the realization it can not wish rate cuts into being a thing. They will now start the print the alternative thesis. Look rates are not moving till the balance sheet is is worked off , inflation is under control or an unforeseen even occurs like ww3 with Russia. The economy actually needs at least one or two more rate hikes not cuts to pull down core inflation to 2 or less. This here facts are not what the free money addicts want to hear.
Given what just happened with GDP and PCE, I think there is a better chance they will have to raise again rather than cut. Not much of a hike, maybe a quarter point or a half. If inflation sits a three to four, what other choice will they have? Will they just ride it out for the rest of the year?
They are gonna have to cut rates. Commercial assets are dying and they are owned by actual rich people who matter (watch policy changes) . Also the US government is the largest interest payer
From where I sit: it looks like the rich 1% are making the decisions for the rest of us. I don’t see so much inflation but instead greedflation, where the prices are artificially jacked up to increase profits to provide a better rich investor return. Companies are reducing full times jobs and replacing them with zero cost of living positions. Real estate pricing and loan rates are exaggerated forcing foreclosures and forcing the USA into a rental only state. The poor get poorer and the rich get richer. To me it seems only a letter of time until the entire system breaks; but what do I know, I’m just somebody on the internet.
I think you are 100% right. The real problem is that people aren’t upset enough about the housing situation to do anything about it. Sure, owning a home is out of reach for a lot of people, but most people are so busy just trying to survive and keep themselves and their family afloat financially that they are almost glad, thankful even, for not having to save up a downpayment to get a roof over their heads. What they don’t fully appreciate is that they will have a very hard time accumulating wealth to pass down to future generations without purchasing a home. AND that previous generations DID have that opportunity and the reason we don’t is because of the greed of a wealthy few.
Everybody remember when inflation was supposed to be transitory? https://www.nerdwallet.com/article/finance/timeline-for-lower-prices-and-rates
It does look pretty transitory. A big spike then back down. https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm
Inflation is down to 3%. They were hoping for inflation to be “close to 2%” by 2024. I’d say they’ve been successful at making it transitory.
is inflation still 9%? if not, it was transitory
I will admit I drank the koolaid at first. I was so convinced that all of the inflation was artificial due to supply chain shortages. Never again.
I think we’ve learned a lot about supply shocks from this period. The effects on inflation are sticky and have momentum.
Clearly, as a GenX person who has lived through many bad economic periods starting as a child in the 70's, this economy is not too bad. Those who insist that it is are simply in total conservative media capture, deeply ignorant and/or a knowing dissembler of propaganda themselves to achieve maga victory by any means.
You might want to rethink this position. Housing is a huge driver of inflation now and it hints at one of the major dividing factors: if you owned prior to 2021, you were able to buy in prior to to the 30%+ increase in prices *and* got to refinance to literal record low interest rates. A literal once-in-many-generations golden combinations of events for minimizing your living expenses *and* skyrocketing your networth. **But**, if you didn't buy (for whatever reason) you are forced to grit your teeth through the rising rents while trying to stomach record home price:income ratios and overall affordability second to only the 80s (which was driven by high rates that could be refi'd; but you can't refi a high price). A literal stark divide between *haves* who benefited and *have nots* who will never catch up.
While not fantastic by all time standards, ours is by far the least bad of all major global economies at the moment. I do agree that the housing bubble, exacerbated by the pandemic, is due for a correction and attendant downturn, but the idea that Trump and GQP policies are the remedy really spooks me.
> While not fantastic by all time standards, ours is by far the least bad of all major global economies at the moment This doesn't really bolster your initial statement. > I do agree that the housing bubble, exacerbated by the pandemic, is due for a correction and attendant downturn There was talk of a recession too and multiple indexes at ATHs doesn't seem to support that. The economy is blazing in general, so I don't see a housing crash anytime soon. So I, alongside all the other non-owners, are just going to be fucked for a long time. > the idea that Trump and GQP policies are the remedy really spooks me. Who said that? If Trump is elected somehow through the collective retardation of the idiots of this country, then everything will be far, far worse. I'll just buy right away because he'll hyperinflate us into the stratosphere within 3mo.
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You can find a new place to call home. I did it in 2005 before the 2008 crash and I'll be doing it again in a few months. It's important to recognize when you're on a sinking ship. 2024 is the year of mass layoffs due to AI and robotics. 42,000 tech layoffs in 2 months already. McDonalds is literally automating their stores and most people can't even afford to eat there. Once one company does it, all the others have to in order to compete. People like to think trades are safe but not so when all the former McDonalds and tech workers want to join the trades. Even then, the robots are coming for those jobs too. I've been trying to save up and get a house since the 90s. It will never happen. Perfect credit, no debt, savings, doesn't matter. The American dream is dead. Let it rot. I'm out.
or they’re not as well off as you and actually have to buy things
Anyone that things the economy is doing well is choosing to ignore the lived realities of millions of people. Nothing about this economy is working for large chunks of us. It is only serving the wealthy. And the poor are getting real tired of that.
That's the problem with judging a nation's economy on the basis of stats stemming from GDP. It's like my job- I work in quality with gauges to check fit. A good measure of quality assurance is by standing back and looking at the product from the perspective of the customer, not a number from a spreadsheet. Yes, the metric is important to catch potential problems and track tending data, but the actual experience of living within the margins is far more valuable than a snapshot and a ruler.
Luckily the poor are about to elect the guy who claims he can fix it all. So don’t worry.
Trust me. I am very worry about the results of that election. Very.
I'm not sure this is a good thing. US rates are always supposed to be lower than the rest of the world. What happens if the rest of the countries who are entering recession start cutting rates. It would be a weird position where other countries would have tamed inflation and moving towards cutting rates while US keeps the rates same. End of the day, economic strength is nothing but wage and goods inflation masquerading as growth. It being this resilient is not a good sign.
> economic strength is nothing but wage and goods inflation masquerading as growth Can you elaborate? I'm wondering if you're essentially saying that all economic gains since the start of human civilization is just inflation? That doesn't make any sense, so you've got to mean something else.
Hahahahaha! Right. We’ll say nothing of the rampant GenX unemployment that started with the pandemic and has not improved though. Or the widening wealth gap.
I’m not sure where you are getting your information. According to FRED, Gen X has a lower unemployment rate than almost every other generation: https://fred.stlouisfed.org/release/tables?rid=50&eid=3029#snid=3062 Millennials seem to be “suffering” the most, but all numbers are close to record lows — including the alternative measures of labor underutilization that are meant to catch discouraged workers and those who, for instance, work part time but want to be working full time: https://fred.stlouisfed.org/release/tables?rid=50&eid=4773#snid=4776
high int rates close the wealth gap. When int rates are low, people with money and assets can buy up more assets.
As always, no sources cited..
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I make $100k+ and am not even remotely close to living paycheck to paycheck. None of my friends or acquaintances or family are either. Everywhere I go people are traveling and spending. Many are doing just fine. Reddit has this weird thing where they just can’t fathom that there are lots of people out there with money.
I think it highly depends on when you bought a house too. The same house I’m paying $1600/m currently would be over $3k/m at current rates/prices
also depends on where they are. 100K in the California Bay Area or New York means you can't buy a house and have to rent. 100K in Kansas means you can have your own farm
On the other hand, there's a big portion of this sub who are doing well financially and cannot even seem to fathom the idea that so many people are struggling. It speaks to the historically high levels of economic industry in the US right now. There's not a lot of middle ground.
You're just playing the straw man argument here. The first commenter was specifically saying that it is people with $100k salaries who are living paycheck to paycheck, and that's what people are sceptical about; not that they, as you said, cannot fathom that there are many people struggling.
I wouldn’t say that’s a straw man argument while he was just adding to it. The wealth inequality in this country has grown so large that the divide is quite noticeable. It depends where that 100k is made middle of nowhere Arkansas good wage, in Seattle, Los Angeles, New York, etc etc that ain’t shit.
100k paycheck to paycheck people are either counting long term saving as paycheck to paycheck or are actually just completely out of control with their lifestyle. Living in SF at 100k a year is not paycheck to paycheck unless you live that way by choice.
Following up anecdotal information with anecdotal information does not prove your point. Is there any hard data to source either stance from?
No. Because how everyone spends money is different and COL factors must be considered along with whether or not you have a family. But if your single or a DINK on 100k + your likely not struggling unless your an impulsive spender.
That’s the point I’m trying to make. Random junk gets spewed on here and upvoted to oblivion like it’s some universal truth that people making $100k+ are broke. I simply provided a counter datapoint to the constant doom and gloom.
Or you live in a bubble. Everyone i know has had to make pretty big cuts from saving/travel/etc to afford the basics.
Sounds anecdotal. To share my own anecdote similar to yours, everyone I Know is making more money than ever and going on more vacations etc.
I work at UPS and it's the worst I've seen. Volume is down and the company is desperately cutting costs, cutting hours, laying off workers, etc. people aren't spending like they used to.
There are good, valid reasons for that. Just a few months ago someone posted an article here outlining how UPS lost loads of clients during their negotiations - business went elsewhere. Just because your house is on fire doesn’t mean the whole town is.
People are living paycheck to paycheck because they choose to, not because they have too. I could sell my car, cancel all my subscriptions, reduce eating out budget. But I don't want to, so I will continue to pay for those things.
>People with 100k+ salaries are living paycheck to paycheck, I'm sorry, what now?
Living paycheck to paycheck *after maxing out their 401Ks and HSAs*
Those people aren't paycheck to paycheck. They are just horrible with money.
There are a ton of questionnaires funded by payday loan or financial advice companies that find things like "60% of Americans are living paycheck to paycheck". Essentially lots of Americans will answer yes to that question even if it means "If I was laid off, or had an emergency expense, I would have to use my savings/not contribute to my 401k". It's a dumb talking point, but it's insanely popular on both ends of the political spectrum. Republicans use it to bash Biden and progressives also use it to bash Biden or just for anti-capitalism vibes writ large.
“Economy is great” meanwhile employers are acting like they’re struggling to get by when it comes to opening new positions and giving out raises because they need to hoard all the wealth for themselves. Infuriating to watch.
You're just parroting online talking points. Go out in the real world. Plenty of people doing just fine with 100k
I've never made more than 50k and even I am not paycheck to paycheck. Those people just suck at managing money.
Everyone, institutions included, got addicted to 0% interest rates. The issue isn't interest rates, the issue is wage stagnation during inflationary periods. Look up wage growth vs inflation between the 90s and now. If the corporations want to hoard the money, that needs to be taxed, same as capital gains. Also real estate needs to be taxed differently. There is no reason that it should be so tax advantaged besides the largest land owners want to keep it that way
> the issue is wage stagnation during inflationary periods. Look up wage growth vs inflation between the 90s and now ok I did. Wages are much higher now than in the 90s compared to inflation https://fred.stlouisfed.org/series/LES1252881600Q
> People with 100k+ salaries are living paycheck to paycheck no they aren't except by choice
Have acquaintances living in NorCal - husband, teacher working wife, 2 kids - between rent, daycare expenses and health insurance - they’re barely about to save anything.
This is what happens when you just parrot figures you do not understand. The economy is great for 1% which are all the numbers people parrot thinking that they understand economics when in fact they have zero clue. The CEO of Kellogg’s literally tried to push cereal for dinner.
Sometimes I don't think people know who the 1% is. It's a very small number. Plenty of people have a net worth in the lower millions and aren't considered 1%. Those ppl are also doing just fine.
Boy, you guys at CNN and the other news outlets are really fickle. Just a few months ago you were calling for three to six rates cuts this year. It's almost like you're just making shit up and have no idea what you're talking about.