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I am seriously confused. Most intelligent people I meet are aware of the "debt economy" aka debt supercycle aka shop-till-you-are-maxed-out phenomenon being cau

by tostitos1979 10y ago

I am seriously confused. Most intelligent people I meet are aware of the "debt economy" aka debt supercycle aka shop-till-you-are-maxed-out phenomenon being caused by ultra low interest rates. Surely this theory is not just held by zerohedge readers any more and by normal people. Once consumers are maxed out, how the heck will they spend in the future? Surely the fed knows this and has a viable plan. Else, they are kicking bigger problems to the future, aren't they?

smaddox 10y ago
Prior to the global financial crisis, Neoclassical Economists, i.e. the ones running the US Fed, would not even consider the level of private debt as a significant macroeconomic metric. That's changed slightly, but not really. They still delusionally believe that private debt doesn't matter UNLESS there's an exogenous shock which forces interest rates to the zero lower bound. They seem unwilling to accept the reality that rising private debt drives macroeconomic demand and that stabilizing or reducing private debt triggers an endogenous crisis a la Hyman Minsky's financial instability hypothesis.
withdavidli 10y ago
By normal people? I think you are greatly overestimating people's knowledge of economic theory. Most probably only know of trickle down because it's mentioned in the news. There was a recent article by NYT about the Chase Sapphire Reserve credit card. Look at the comment section, most don't know how to do cost benefit analysis. All they saw was a $450 annual fee. A good amount still talk about paying with cash only. This doesn't mean I'm much better off. When you mentioned debt super cycles I have no idea what you mean. I'm only starting to get into economic theories. I'm 27, can be considered upper middle income, and given millennial income calculators in top 1% of earnings (not saying much since most people in the valley can get that, ~$70k income for that level). These theories does not have a perceived effect on people's day to day lives. So a lot don't know about them or don't care. Example, every few weeks I see an article in the front page about negotiating salary. This isn't a gauge of knowledge, but of interest. Everyone goes through negotiation situation, value is obvious, more people learn about it.
- afterburner 10y ago
  You must be thinking top 1% in the world. To be in the top 1% in the US, you need more like a $450,000 income. http://money.cnn.com/calculator/pf/income-rank/ http://money.cnn.com/calculator/pf/income-rank/
  - tsunamifury 10y ago
    He's trying to measure himself against the average single person his age. Of course, more realistically according to the Bay Area metric, he is below the household poverty line.
    - withdavidli 10y ago
      Yes. This is what I did from a calculator by fusion http://fusion.net/story/41833/wealth-gap-calculator-are-you-in-the-millennial-one-percent/ http://fusion.net/story/41833/wealth-gap-calculator-are-you-... Mixed up my numbers, top 1% for age group ~106k. Bay Area metric I make more than median household, which is scary since that means the average single income family in the Bay Area would be barely scraping by (not hard to believe).
      - tsunamifury 10y ago
        Just because you make more than median doesn't mean you aren't still below the household poverty line. Once you grasp that, you'll begin to understand the completely upside down economy of the Bay Area. Palo Alto considers below 250k/y household low enough to qualify for subsidized housing. The top 1% make $450k and the top 1% in San Francisco make nearly $1m. You are in a crazy context you aren't yet fully realizing.
        withdavidli 10y ago
        Not sure what craziness you think I don't perceive. My initial comment is to demonstrate how a person in my generation that is doing relatively well financially, are not versed in the economic concepts the parent comment provided (debt cycle). That it is not normal for us to know such concepts.
ArkyBeagle 10y ago
But household debt peaked in 2007.

smaddox 10y ago

Prior to the global financial crisis, Neoclassical Economists, i.e. the ones running the US Fed, would not even consider the level of private debt as a significant macroeconomic metric. That's changed slightly, but not really. They still delusionally believe that private debt doesn't matter UNLESS there's an exogenous shock which forces interest rates to the zero lower bound. They seem unwilling to accept the reality that rising private debt drives macroeconomic demand and that stabilizing or reducing private debt triggers an endogenous crisis a la Hyman Minsky's financial instability hypothesis.

withdavidli 10y ago

By normal people? I think you are greatly overestimating people's knowledge of economic theory. Most probably only know of trickle down because it's mentioned in the news. There was a recent article by NYT about the Chase Sapphire Reserve credit card. Look at the comment section, most don't know how to do cost benefit analysis. All they saw was a $450 annual fee. A good amount still talk about paying with cash only. This doesn't mean I'm much better off. When you mentioned debt super cycles I have no idea what you mean. I'm only starting to get into economic theories. I'm 27, can be considered upper middle income, and given millennial income calculators in top 1% of earnings (not saying much since most people in the valley can get that, ~$70k income for that level). These theories does not have a perceived effect on people's day to day lives. So a lot don't know about them or don't care. Example, every few weeks I see an article in the front page about negotiating salary. This isn't a gauge of knowledge, but of interest. Everyone goes through negotiation situation, value is obvious, more people learn about it.

afterburner 10y ago
You must be thinking top 1% in the world. To be in the top 1% in the US, you need more like a $450,000 income. http://money.cnn.com/calculator/pf/income-rank/ http://money.cnn.com/calculator/pf/income-rank/
- tsunamifury 10y ago
  He's trying to measure himself against the average single person his age. Of course, more realistically according to the Bay Area metric, he is below the household poverty line.
  - withdavidli 10y ago
    Yes. This is what I did from a calculator by fusion http://fusion.net/story/41833/wealth-gap-calculator-are-you-in-the-millennial-one-percent/ http://fusion.net/story/41833/wealth-gap-calculator-are-you-... Mixed up my numbers, top 1% for age group ~106k. Bay Area metric I make more than median household, which is scary since that means the average single income family in the Bay Area would be barely scraping by (not hard to believe).
    - tsunamifury 10y ago
      Just because you make more than median doesn't mean you aren't still below the household poverty line. Once you grasp that, you'll begin to understand the completely upside down economy of the Bay Area. Palo Alto considers below 250k/y household low enough to qualify for subsidized housing. The top 1% make $450k and the top 1% in San Francisco make nearly $1m. You are in a crazy context you aren't yet fully realizing.
      - withdavidli 10y ago
        Not sure what craziness you think I don't perceive. My initial comment is to demonstrate how a person in my generation that is doing relatively well financially, are not versed in the economic concepts the parent comment provided (debt cycle). That it is not normal for us to know such concepts.

ArkyBeagle 10y ago

But household debt peaked in 2007.