4 ms·

> “My grand, macro thesis is that real interest rates have to stay low, and that’s because the rich have all the wealth and like saving,” I feel I'm the choir

> “My grand, macro thesis is that real interest rates have to stay low, and that’s because the rich have all the wealth and like saving,” I feel I'm the choir and this guy is the preacher, leaning as I do towards full-on socialist, so I'd like to hear a counter argument from someone who believes the opposite.

panick21_ 5y ago
Check my other post for a reason why this is nonsense.
aidenn0 5y ago
I'm definitely not full-on socialist[1], but that statement just seems obviously true to me. My lifetime has been a steady increase in levels of inequality, with no end in sight. 1: I think a moderately progressive tax system (e.g. top tax bracket around 50%) combined with unifying investment-income with earned income would go a long way towards fixing the system. Progressives seem to believe that billionaires need to be punished, I'd just like for them to not be able to maintain their wealth indefinitely without taking on some real risk.
- kwhitefoot 5y ago
  You need to tax unearned income as well.
  - aidenn0 5y ago
    Which is why I said "unifying investment income with earned income" in my footnote?
aeternum 5y ago
The rich are generally net lenders so low real interest rates should hurt them. Yes asset prices seem to be going up, but asset prices should generally stay the same in real terms. The poor are generally net borrowers so low interest rates have for most of history been considered good for the poor. Very recently wages have not kept up especially real wages. I think most of that has to do with globalization. IE US wages have lagged while China/India has seen above average wage growth. Basically you have much of the US workforce saying 'I make twice as much as my parents did at my age, why can't I afford a house?' But in real terms, their parents' labor was valued significantly higher than their labor currently is. The world was a different and less connected place back then so there was much less international wage competition.
- llimos 5y ago
  What does "net lenders" mean? The rich use debt extensively to invest in assets. They're not lending the money out. They borrow way more than the poor, and buy assets.
  - aeternum 5y ago
    A loan is an asset to the person that made the loan. Yes some of the rich use leverage to increase the amounts they can put towards assets / lend out. In general though they are still net lenders. For example it is very unlikely that a rich person with 100mil would take out additional leverage for another 50mil and let that 150mil just sit in cash. Doing that would make them a net borrower (of 50mil). Instead, they will invest that 150mil, suppose they decide to buy a bundle of mortgage-backed securities. They now have an asset worth 150mil, and via the txn they are effectively lending 150mil worth of value to homeowners. Even with the 50mil loan, they are still a 100mil net lender.
flurben 5y ago
For starters, in the U.S. system, interest rates on government debt are set by central bank policy. Investors cannot force it up or down. In general, I'm not sure the guy they are quoting is a reliable source of information about macroeconomics.
- panick21_ 5y ago
  That's a was oversimplification and is as constructed not correct. Interest rates on government debt are not set by central bank policy. Nominal rates on back reserves are set by central bank policy. But those rates are set RELATIVE to real rates. So if real rates are low then the central bank can not magically set them higher without causing massive economic damage. So yes, investors and the real economy very much influences interest rates. In addition government debt interest rates are very different and are mostly determined by market forces.

panick21_ 5y ago

Check my other post for a reason why this is nonsense.

aidenn0 5y ago

I'm definitely not full-on socialist[1], but that statement just seems obviously true to me. My lifetime has been a steady increase in levels of inequality, with no end in sight. 1: I think a moderately progressive tax system (e.g. top tax bracket around 50%) combined with unifying investment-income with earned income would go a long way towards fixing the system. Progressives seem to believe that billionaires need to be punished, I'd just like for them to not be able to maintain their wealth indefinitely without taking on some real risk.

kwhitefoot 5y ago
You need to tax unearned income as well.
- aidenn0 5y ago
  Which is why I said "unifying investment income with earned income" in my footnote?

aeternum 5y ago

The rich are generally net lenders so low real interest rates should hurt them. Yes asset prices seem to be going up, but asset prices should generally stay the same in real terms. The poor are generally net borrowers so low interest rates have for most of history been considered good for the poor. Very recently wages have not kept up especially real wages. I think most of that has to do with globalization. IE US wages have lagged while China/India has seen above average wage growth. Basically you have much of the US workforce saying 'I make twice as much as my parents did at my age, why can't I afford a house?' But in real terms, their parents' labor was valued significantly higher than their labor currently is. The world was a different and less connected place back then so there was much less international wage competition.

llimos 5y ago
What does "net lenders" mean? The rich use debt extensively to invest in assets. They're not lending the money out. They borrow way more than the poor, and buy assets.
- aeternum 5y ago
  A loan is an asset to the person that made the loan. Yes some of the rich use leverage to increase the amounts they can put towards assets / lend out. In general though they are still net lenders. For example it is very unlikely that a rich person with 100mil would take out additional leverage for another 50mil and let that 150mil just sit in cash. Doing that would make them a net borrower (of 50mil). Instead, they will invest that 150mil, suppose they decide to buy a bundle of mortgage-backed securities. They now have an asset worth 150mil, and via the txn they are effectively lending 150mil worth of value to homeowners. Even with the 50mil loan, they are still a 100mil net lender.

flurben 5y ago

For starters, in the U.S. system, interest rates on government debt are set by central bank policy. Investors cannot force it up or down. In general, I'm not sure the guy they are quoting is a reliable source of information about macroeconomics.

panick21_ 5y ago
That's a was oversimplification and is as constructed not correct. Interest rates on government debt are not set by central bank policy. Nominal rates on back reserves are set by central bank policy. But those rates are set RELATIVE to real rates. So if real rates are low then the central bank can not magically set them higher without causing massive economic damage. So yes, investors and the real economy very much influences interest rates. In addition government debt interest rates are very different and are mostly determined by market forces.