4 ms·

Thank goodness we have fixed all the things wrong with our economy's approach to housing and debt, so that all that won't just happen again.

zackmorris 8y ago
You may get downvoted so I just want to say that I agree with you. The dot bomb and housing bubble were political events, not financial. We have fundamental problems in our economy that aren't being addressed: * Tax brackets haven't been adjusted in decades, so when people begin making modest amounts of money, say $50-100,000 per year, their taxes increase too fast and they don't feel wealthier. I would suggest keeping the bracket shapes but shifting them to the right by at least 2x to account for inflation. This amounts to a tax cut for the poor and keeping taxes roughly the same for the rich (the opposite of what's been done since 1980). Then we should (obviously) gradually raise taxes over 5-10 years to match the deficit. * Interest rates are too low because politicians don't want to put the brakes on the economy. The flip side is that they have no way to press the accelerator when the economy tanks. The end result being exaggerated booms and busts, exactly as we have seen in 2000/2001 and 2008 (which means that we're overdue for a bust with current Fed interest rate policy). * Corporations can be based in the US but act as foreign multinationals by hiding their taxes. Fixing this is trivial but depends on getting money out of politics. See: Citizens United, campaign finance reform and publicly funded elections. The above are econ 101. My personal thoughts on this are that rents, houses and cars cost an order of magnitude too much for what they provide. We spend an order of magnitude too much on the military. We don't build enough or reward makers enough because the financial sector of the economy is twice as big as it used to be and we're obsessed with 40 hour weeks instead of progress or quality of life. I'm 41 and have never seen any of these things change in my lifetime, so am expecting a major downturn in the economy sometime in the next 2-5 years, followed by a series of knee-jerk populist reactions that ensure a repeat 10 years later (downturns are where the wealthy make more money, as they have the capital to buy up assets).
- charlesdm 8y ago
  The problem of 2008 has basically been swept under the rug. My gut feeling is telling me the next recession will be worse, because the only thing that can be done is print more money, which repeats the cycle (but since wages never go up, but asset prices do -- so worsens the problem of more inequality) Easy debt means easy profits, which in turns means that it's better to play a financial game over building something sustainable. It's much easier to turn $10m into $20m in a reasonable amount of time, than it is to build a proper business and sell that for $10m.
- hyperpape 8y ago
  1. I think tax brackets are adjusted for inflation: https://taxfoundation.org/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets https://taxfoundation.org/us-federal-individual-income-tax-r... 2. The fed funds rate is low, but has been rising: https://tradingeconomics.com/united-states/interest-rate https://tradingeconomics.com/united-states/interest-rate.
  - zackmorris 8y ago
    Hey cool thanks. I think the tax bracket page may only work in Edge, which I don't have on my computer, but I found this image associated with it: https://commons.wikimedia.org/wiki/File:Historical_Marginal_Tax_Rate_for_Highest_and_Lowest_Income_Earners.jpg https://commons.wikimedia.org/wiki/File:Historical_Marginal_... I'm having trouble understanding what it's saying though. All I see is that the top bracket was highest during WWI and WWII, approaching 90% on the wealthy, but is effectively zero since Reagan. The low rate's pretty flat and the high rate has gone down. And there are fewer brackets today (that might be why I perceived them as not having been updated). One takeaway though is that the last time tax brackets were similar to today was from 1925-1931... Also if you try clicking MAX on the second link, it seems that we've hit a floor on the fed funds rate, so maybe if it rises then it could move our economy back towards production instead of consumption by making capital more expensive. I might be reading my own gut feelings into that though so take it with a grain of salt.
    - hyperpape 8y ago
      1. Sorry, I gave you the wrong link. Here's the info in a PDF: https://files.taxfoundation.org/legacy/docs/fed_individual_rate_history_nominal.pdf https://files.taxfoundation.org/legacy/docs/fed_individual_r.... 2. We certainly have historically low rates. It's not the case that the Fed has refused to raise them--they've cautiously raised them. One contributing factor is that wages haven't been increasing, and inflation is very very low. The early 80s were an outlier in another way: Paul Volker shot interest rates incredibly high to deal with historically high inflation numbers. So the relevant comparison is arguably 4-10% (late 80s/90s/2000s) vs. 2.25% today.
adventured 8y ago
Well let's examine the facts in the economy around housing and debt. 3Q08, peak housing debt: $10 trillion. 2Q18, housing debt: $9.5 trillion. That's with ten years of inflation, and housing being worth a lot more today than it was at the real estate bubble peak. Which is another way of saying, the US housing stock has dramatically more equity today than it did ten years ago. In 3Q08 the median sale price of a house was $226,000. Today it's $309,000. People aren't very interested in selling or flipping, there's a dearth of inventory in most of the country, and people continue to build equity and pay down their mortgage debts. Next, let's examine household debt service payments as a percentage of disposable income. An important sustainability metric for any normal household. 4Q07: 13.2%, the highest level on record. It was typically around 11% in the 1995-2000 economic boom. In the 1980s it peaked at 12% in 1987. 2Q18: 9.8%, the lowest level in the last 40 years. That is, the percentage of household disposable income going to debt service payments, is at a ~40 year low. By comparison, the lowest level in the 1990s, was right after the early 90s recession in 1993, at 10.3%. So US household debt service costs are hitting record lows, during a boom phase, which is extremely unusual (consumers are still quite skittish about debt thanks to the great recession). Household debt to disposable income levels are at 16 year lows. Back to where it was in 2003. That rate has been relatively stable for the last four years, showing no signs of consumer household stress. The consumer comfort index by Bloomberg is indicating that consumers are as comfortable as they've been in two decades (several other consumer comfort surveys say the same thing). Next let's look at mortgage delinquencies, a critical metric for housing sustainability and a key indicator of the last housing crash. From the Fed's 2Q18 report: "Mortgage delinquencies continued to improve, with 1.1% of mortgage balances 90 or more days delinquent in 2018Q2." That peaked at 5% in early 2010, roughly. That rate has been improving basically non-stop since 2010. It's not back to the 1990s lows, however it's back to the mid 1980s and early 2000s normal levels. Another year or two of improvement and it'll be back to properly healthy levels matching the mid 1990s. Balances on home equity lines of credit (HELOC) have been declining for a decade. Consumers typically tap into that when they're in desperate condition, and the very low rates of the last ~8 years were a prime opportunity to do so. Next let's look at credit cards, given how common they are among consumers and that they're one of the first things consumers begin defaulting on. The percent of credit card balances 90+ days late, peaked in 2Q10, at around 13.7%. That's now at 7.9%. That has remained low and stable for the last four years, and is comparable to the rates seen 15-20 years ago before the housing bubble years (and is below the 2002-2005 years). Consumers are showing no sign of stress when it comes to credit cards. Student loans are the worst debt stress point among consumers (those with student loans that is). The percentage of student loans 90+ days late, is at 10.9% today, it peaked at 11.7% and 11.8% in 2012/2013. That compares to ~6.5% to ~7.5% in the 2003-2006 years before the great recession. The rate has remained unchanged for six years, indicating it's still elevated and remains a serious problem, and isn't worsening.

zackmorris 8y ago

You may get downvoted so I just want to say that I agree with you. The dot bomb and housing bubble were political events, not financial. We have fundamental problems in our economy that aren't being addressed: * Tax brackets haven't been adjusted in decades, so when people begin making modest amounts of money, say $50-100,000 per year, their taxes increase too fast and they don't feel wealthier. I would suggest keeping the bracket shapes but shifting them to the right by at least 2x to account for inflation. This amounts to a tax cut for the poor and keeping taxes roughly the same for the rich (the opposite of what's been done since 1980). Then we should (obviously) gradually raise taxes over 5-10 years to match the deficit. * Interest rates are too low because politicians don't want to put the brakes on the economy. The flip side is that they have no way to press the accelerator when the economy tanks. The end result being exaggerated booms and busts, exactly as we have seen in 2000/2001 and 2008 (which means that we're overdue for a bust with current Fed interest rate policy). * Corporations can be based in the US but act as foreign multinationals by hiding their taxes. Fixing this is trivial but depends on getting money out of politics. See: Citizens United, campaign finance reform and publicly funded elections. The above are econ 101. My personal thoughts on this are that rents, houses and cars cost an order of magnitude too much for what they provide. We spend an order of magnitude too much on the military. We don't build enough or reward makers enough because the financial sector of the economy is twice as big as it used to be and we're obsessed with 40 hour weeks instead of progress or quality of life. I'm 41 and have never seen any of these things change in my lifetime, so am expecting a major downturn in the economy sometime in the next 2-5 years, followed by a series of knee-jerk populist reactions that ensure a repeat 10 years later (downturns are where the wealthy make more money, as they have the capital to buy up assets).

charlesdm 8y ago
The problem of 2008 has basically been swept under the rug. My gut feeling is telling me the next recession will be worse, because the only thing that can be done is print more money, which repeats the cycle (but since wages never go up, but asset prices do -- so worsens the problem of more inequality) Easy debt means easy profits, which in turns means that it's better to play a financial game over building something sustainable. It's much easier to turn $10m into $20m in a reasonable amount of time, than it is to build a proper business and sell that for $10m.
hyperpape 8y ago
1. I think tax brackets are adjusted for inflation: https://taxfoundation.org/us-federal-individual-income-tax-rates-history-1913-2013-nominal-and-inflation-adjusted-brackets https://taxfoundation.org/us-federal-individual-income-tax-r... 2. The fed funds rate is low, but has been rising: https://tradingeconomics.com/united-states/interest-rate https://tradingeconomics.com/united-states/interest-rate.
- zackmorris 8y ago
  Hey cool thanks. I think the tax bracket page may only work in Edge, which I don't have on my computer, but I found this image associated with it: https://commons.wikimedia.org/wiki/File:Historical_Marginal_Tax_Rate_for_Highest_and_Lowest_Income_Earners.jpg https://commons.wikimedia.org/wiki/File:Historical_Marginal_... I'm having trouble understanding what it's saying though. All I see is that the top bracket was highest during WWI and WWII, approaching 90% on the wealthy, but is effectively zero since Reagan. The low rate's pretty flat and the high rate has gone down. And there are fewer brackets today (that might be why I perceived them as not having been updated). One takeaway though is that the last time tax brackets were similar to today was from 1925-1931... Also if you try clicking MAX on the second link, it seems that we've hit a floor on the fed funds rate, so maybe if it rises then it could move our economy back towards production instead of consumption by making capital more expensive. I might be reading my own gut feelings into that though so take it with a grain of salt.
  - hyperpape 8y ago
    1. Sorry, I gave you the wrong link. Here's the info in a PDF: https://files.taxfoundation.org/legacy/docs/fed_individual_rate_history_nominal.pdf https://files.taxfoundation.org/legacy/docs/fed_individual_r.... 2. We certainly have historically low rates. It's not the case that the Fed has refused to raise them--they've cautiously raised them. One contributing factor is that wages haven't been increasing, and inflation is very very low. The early 80s were an outlier in another way: Paul Volker shot interest rates incredibly high to deal with historically high inflation numbers. So the relevant comparison is arguably 4-10% (late 80s/90s/2000s) vs. 2.25% today.

adventured 8y ago

Well let's examine the facts in the economy around housing and debt. 3Q08, peak housing debt: $10 trillion. 2Q18, housing debt: $9.5 trillion. That's with ten years of inflation, and housing being worth a lot more today than it was at the real estate bubble peak. Which is another way of saying, the US housing stock has dramatically more equity today than it did ten years ago. In 3Q08 the median sale price of a house was $226,000. Today it's $309,000. People aren't very interested in selling or flipping, there's a dearth of inventory in most of the country, and people continue to build equity and pay down their mortgage debts. Next, let's examine household debt service payments as a percentage of disposable income. An important sustainability metric for any normal household. 4Q07: 13.2%, the highest level on record. It was typically around 11% in the 1995-2000 economic boom. In the 1980s it peaked at 12% in 1987. 2Q18: 9.8%, the lowest level in the last 40 years. That is, the percentage of household disposable income going to debt service payments, is at a ~40 year low. By comparison, the lowest level in the 1990s, was right after the early 90s recession in 1993, at 10.3%. So US household debt service costs are hitting record lows, during a boom phase, which is extremely unusual (consumers are still quite skittish about debt thanks to the great recession). Household debt to disposable income levels are at 16 year lows. Back to where it was in 2003. That rate has been relatively stable for the last four years, showing no signs of consumer household stress. The consumer comfort index by Bloomberg is indicating that consumers are as comfortable as they've been in two decades (several other consumer comfort surveys say the same thing). Next let's look at mortgage delinquencies, a critical metric for housing sustainability and a key indicator of the last housing crash. From the Fed's 2Q18 report: "Mortgage delinquencies continued to improve, with 1.1% of mortgage balances 90 or more days delinquent in 2018Q2." That peaked at 5% in early 2010, roughly. That rate has been improving basically non-stop since 2010. It's not back to the 1990s lows, however it's back to the mid 1980s and early 2000s normal levels. Another year or two of improvement and it'll be back to properly healthy levels matching the mid 1990s. Balances on home equity lines of credit (HELOC) have been declining for a decade. Consumers typically tap into that when they're in desperate condition, and the very low rates of the last ~8 years were a prime opportunity to do so. Next let's look at credit cards, given how common they are among consumers and that they're one of the first things consumers begin defaulting on. The percent of credit card balances 90+ days late, peaked in 2Q10, at around 13.7%. That's now at 7.9%. That has remained low and stable for the last four years, and is comparable to the rates seen 15-20 years ago before the housing bubble years (and is below the 2002-2005 years). Consumers are showing no sign of stress when it comes to credit cards. Student loans are the worst debt stress point among consumers (those with student loans that is). The percentage of student loans 90+ days late, is at 10.9% today, it peaked at 11.7% and 11.8% in 2012/2013. That compares to ~6.5% to ~7.5% in the 2003-2006 years before the great recession. The rate has remained unchanged for six years, indicating it's still elevated and remains a serious problem, and isn't worsening.