The hidden Tax -why we don’t have fed tax cuts- inflation

[hermosabeach]

I’m young enough that the 1970s is not in my memory

30 year treasuries yielding 15%

yes US treasuries were 15% and no one wanted them.

—
So traditional tax- take money from person A and give to person B

only person B has the money to spend.

Today- we cut “fed tax rate” so both person A and Person B have money to buy shit.

so the stock market and real estate are crazy high

how do both person A And B have money-the US government prints it.

Inflation is ok for some who hold a massive amount of debt. A falling dollar means it’s cheaper to pay back the debt.

for individuals, inflation or hyperinflation is death

Dollar drops 45% against the world
Electronics and everything we buy costs a lot more.

saving account might be 4-8% lower than inflation

so all savings are attacked


so old timers- chime in- how much hamburger helper did you eat in the 70s?

What is coming to America ?

 

[camocorvette]

I've been telling people. "Just Wait".
the dollar is going to continue to plummet. People don't get it, all this "free" money has a cost.

 

[Laseredge]

 

[Dragonscout25]

Fortunately I grew up right on the water in North Carolina. So we ate a LOT of seafood, occasionally got some helper. But Dad's company (union) went on strike every 2nd or 3rd year. Dad would walk the picket line while I was in school. He's come get me and then we'd go fishing til dark. Catching 2 or 3 king mackerel (8-15 lb) and some bluefish was fun. He's stop by one of the seafood restaurants who would buy all he wanted to sell. Then we'd go home and have a meal of fish, shrimp, some grits and fries and baked beans. Wash it down with sweet tea or SunDrop and man I hoped he never got off strike! The joy of being a kid or teen was truly magical to me...

 

[Dewey7271]

View attachment 7377105
I’m young enough that the 1970s is not in my memory

30 year treasuries yielding 15%

yes US treasuries were 15% and no one wanted them.

—
So traditional tax- take money from person A and give to person B

only person B has the money to spend.

Today- we cut “fed tax rate” so both person A and Person B have money to buy shit.

so the stock market and real estate are crazy high

how do both person A And B have money-the US government prints it.

Inflation is ok for some who hold a massive amount of debt. A falling dollar means it’s cheaper to pay back the debt.

for individuals, inflation or hyperinflation is death

Dollar drops 45% against the world
Electronics and everything we buy costs a lot more.

saving account might be 4-8% lower than inflation

so all savings are attacked


so old timers- chime in- how much hamburger helper did you eat in the 70s?

What is coming to America ?

Yep, that was bad.
Couple more additions to your post.
look at what the top tax was (70%) and where actual inflation was (fluctuated from 12-14%)
Take your yield(15%) times even 40%(gave you a tax break), then inflation subtraction. Net yield after tax and inflation between -3 and -5%. Of course no one wanted to buy them.
‘Don’t forget, right about then genius Jimmy C boycotted the Olympics and grain embargoed the Soviets. Along with gas lines too.
Good times (sarcasm)

 

[Gee Kay]

how do both person A And B have money-the US government prints it.

i think this is wrong. the US govt does not print money. money printing is done by a private entity calling itself federal.

 

[E. Bryant]

The US Treasury does indeed issue currency, and thus "prints money". The Federal Reserve has substantial influence on the flow of that money into and out of the economy, so it's obviously complicit. But the basic flow of cash into the economy is that the Treasury prints every dollar the federal government spends (~$3 trillion under normal circumstances, which certainly as hell isn't the current situation), and then removes some amount of that same money via taxation (usually around $2 trillion). Treasury notes (bonds) are issued to backstop that printing, and the purchase thereof on the open market removes the same number of dollars from circulation that are added by spending. The Fed comes into play when it starts purchasing those Treasuries itself, which doesn't require that dollars be removed from circulation and thus has a stimulative effect (this is the so-called "quantitative easing" that has been in effect since 2008 to the tune of several trillion dollars). We talk about this "deficit spending" process as if it's the same as a household outspending its means, but the reality is slightly more complicated.

What people didn't get is that if we had waved a magic wand and removed deficit spending from the economy during pre-Covid times, it would have been an instant ~5% hit to GDP for the period 2009-2019. Seeing as how the economy expanded by roughly 2% annually over that period, we would have found itself in a decade-long slump with no end in sight (hello, Japan!). Even prior to Covid, there was effectively zero chance of ever balancing the budget, and after the last few months of spending, the outlook is now even worse.

In June 2020, the federal budget deficit was $864 billion. That is more debt in one month than the federal government accumulated through the first 200 years of its existence.

 

[W54/XM-388]

This is kind of pretty old news and folks have been banging the drum on it for decades.

The rest of the world however isn't far behind us trying to devalue their own currencies as fast as they can get away with it for much the same reasons.

 

[armorpl8chikn]

What's coming?
Hope you like pine needle tea.

 

[_Windrider_]

 

[DarnYankeeUSMC]

We probably won't see the federal interest rate above 1% until something crazy happens. (SHTF?) They have spent $10 trillion since the COVID bullshit fiasco and with that added to the debt there's little chance of even servicing the interest on the debt if the rates go much over 1%. A year and a half ago they tried crashing Trump's economy by raising the interest rates and found out that an economic crash was on the table. IIRC it was last fall that the short term bonds went on the market for negative interest. Think about that. No one wanted US Treasury Bonds.
We are riding this rocket into the ground and you better get prepared. At least you will need a wheelbarrow to carry your cash for a loaf of bread.
Nevermind. I just got finished reading the thread about No Coins and the cashless economy.

 

[W54/XM-388]

At least you will need a wheelbarrow to carry your cash for a loaf of bread.
Nevermind. I just got finished reading the thread about No Coins and the cashless economy.

I would bet that when it's all cashless (effectively even if not actually legally), and we hit hyper inflation, there will be folks posting clips on social media bragging about how great it feels to be getting a million dollar paycheck for the first time in their lives.....

 

[E. Bryant]

The rest of the world however isn't far behind us trying to devalue their own currencies as fast as they can get away with it for much the same reasons.

Currency devaluation worked really well for Japan - right up untill it didn't, and then they dropped into a slump that's been 30 years long and counting.

It's a race to the bottom. The losers end up with a destroyed currency and nothing to show for it.

 

[W54/XM-388]

Currency devaluation worked really well for Japan - right up untill it didn't, and then they dropped into a slump that's been 30 years long and counting.

It's a race to the bottom. The losers end up with a destroyed currency and nothing to show for it.

Japan also tried the little to next to zero interest thing a long time ago.... Didn't help..

However the Japanese are now facing an existential crisis that was slowly brewing but was kicked into overdrive by their recession (which interestingly enough was kicked off by the central bank, much like our great depression was....)

It's a pretty well proven theory that when there is prolonged negative economic outlook, the working class doesn't tend to have as many children as normal, and often delay not only having children but getting married and all the things that go with the next generation moving ahead.

They play it cool and try to not be too freaked out, but the government and most folks know, the country is about to implode from the population shrinking due to a birth rate well below the bare minimum replacement level, combined with a very rapidly aging population that will be needing a lot of elder care as well as wanting their retirements and savings paid out.

Young people were living in their parent's houses way too long in Japan before it ever became a thing here.

I'm pretty sure it's part of the plan for them just like certain plans are coming to pass here.
Eliminate those unlikely to be good little slaves to the Global Elite Mega Rich overlords.

 

[ken226]

 

[hermosabeach]

I know that many debt investors don’t understand the term Duration.

if you own a bond or a bond fund, loot at the duration number.

las I understand it, duration is the price sensitivity to interest rate movement.

a typical 30 year bond has a duration between 8-13.

what that means is the bonds price will change 8%-13% the opposite way of bond yields.

Should long term treasuries bond yields move up 2%, then the bonds price will drop 16%-23%

If you hold cmo’s in your portfolio, those will get hammered too.

If one looks at the price of real estate in the same way, a 2% increase in the 30 year benchmark will wipe out the equity of most people who purchased a home in the past say 5 years....

In 2000, one could still get 9-10% ginnie mae bonds.....
They all refinanced and the bonds paid off faster.

I can’t imagine what would happen to our economy if we went back to 8-10% APR on home loans.

the coasts would be wiped out as a million dollar home in the Bay Area would sell for half....

 

[W54/XM-388]

I can’t imagine what would happen to our economy if we went back to 8-10% APR on home loans.
the coasts would be wiped out as a million dollar home in the Bay Area would sell for half....

I bought my house back when the average interest rate on houses was around the 7.5% and it was not really any big deal at the time, it was just the way everything was and you bought a house you could afford based on that.

I think in some respects the fact that rates dropped to stupid low amounts was actually something that encouraged folks to get in way over their heads.

 

[kthomas]

There was a really interesting JRE podcast episode recently on this very topic - episode #1508 with Peter Schiff.

I'm not an economist by any stretch of the definition, but what Peter Schiff has to say on the topic is very interesting. He's very much for free markets and little to no government intervention. While I think at times his views are a bit idealistic, he raises some pretty good points and is very informative.

He has a pretty gloomy perspective on where the US is headed economically.

 

[E. Bryant]

Very solid points on the sensitivity of real estate prices to interest rates This will indeed been a huge problem if rates ever return to historical norms.

We also won't be buying very many $70k pickup trucks if auto loans carry a 9.9% rate.

The scariest effect is the governments' borrowing costs. Servicing $25 trillion (maybe more like $30 trillion by the time I hit "Post Reply") at rates of just 5% gets prohibitively expensive.

For all the reasons above, it's clear that rates will not be increased voluntarily. Which means that when they do finally rise, it'll be beyond the control of the Fed. That'll be a whole new world for everyone involved in the financial system.

 

[E. Bryant]

There was a really interesting JRE podcast episode recently on this very topic - episode #1508 with Peter Schiff.

I'm not an economist by any stretch of the definition, but what Peter Schiff has to say on the topic is very interesting. He's very much for free markets and little to no government intervention. While I think at times his views are a bit idealistic, he raises some pretty good points and is very informative.

He has a pretty gloomy perspective on where the US is headed economically.

Schiff is a smart guy whom I also find difficult to listen (his appearance on Rogan was a bit of a disaster for the same reason I don't listen to Schiff's own podcast). He also got a bad rap coming out of the '08 downturn because his predictions didn't come fully true, but I suspect he'll eventually be proven correct. Unfortunately for him, by the time that happens, most will be so busy worrying any their next meal to stop and give him any credit. Goes with the territory, I guess.

 

[W54/XM-388]

Very solid points on the sensitivity of real estate prices to interest rates This will indeed been a huge problem if rates ever return to historical norms.

We also won't be buying very many $70k pickup trucks if auto loans carry a 9.9% rate.

Much like the skyrocketing rate of college tuition.....

Once upon a time, reasonable interest rates and not being able to get loans in excess of fairly conservative ratios kept the runaway inflation on everything from cars, trucks, houses, boats, college etc. in check. But now everything has gone crazy.

Back when I was buying a house, it was a pretty hard rule that you would only be approved for a loan that was less than 3 times your annual salary.

 

[TheGerman]

I'm sure we're going to come up with an even dumber/crazier way of not only buying our own debt via bonds but somehow selling them back to us (from us) at a loss to make the difference in debt somehow 'disappear'.