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What if your entire worldview was just because of near-zero interest rates?

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Re: What if your entire worldview was just because of near-zero interest rates?

#281

Post by em500 »

s1artibartfast wrote: post #268
em500 wrote: post #163

Earlier quoted context omitted.

Straight from the source: https://www.belastingdienst.nl/wps/wcm/connect/en/income-in-... Summary: https://en.wikipedia.org/wiki/Taxation_in_the_Netherlands#Bo...

This looks like capital gains to me. Taxation on income from wealth, not wealth itself. https://www.belastingdienst.nl/wps/wcm/connect/en/income-in-...

It's not a capital gains tax. The Netherlands has been taxing net wealth (with some exemptions, most notably for primary residences and vehicles) at around around 1.2%/year. This was implemented as a 30% levy on an assumed 4% investment return on net wealth, regardless of actual or realized returns and regardless of how the wealth was held (stocks, bonds, savings account, bitcoins). I suppose you could say that the taxation is on "income from wealth" (assumed to be 4%, taxed at 30%), but that seems like a distinction without any difference to me. Your net wealth is assessed, and you pay a fix % on it, regardless how much money it actually made.

The article you linked to refers to a recent court ruling against that system. (A bunched of pissed citizens sued the government because interest saving rates have been 0% or even negative for many years now.) The government is now scrambling to update the tax code, but AFAIK no change has been implemented yet. Last year's net wealth was still taxed at assumed (rather than realized) investment returns in this years income tax assesment.

Re: What if your entire worldview was just because of near-zero interest rates?

#282

Post by rayiner »

BeetleB wrote: post #97
rayiner wrote: post #77

Earlier quoted context omitted.

While slowly turning the country into Bangladesh. Fantastic.

It will be well beyond our lifetime when the US gets comparable to Europe in terms of population density. Bangladesh levels are way far away and there are good reasons to believe that the US can keep increasing their population via immigration and never achieve Bangladesh levels of density. For anyone not following, Bangladesh has the highest population density in the world once you exclude city states. This is a cla…

I’m not making a point about population density, but rather changing culture and reducing social trust. Immigrants make their new country more like their home country: https://www.sup.org/books/title/?id=35594

Re: What if your entire worldview was just because of near-zero interest rates?

#283

Post by jongjong »

prox wrote: post #142
jongjong wrote: post #136

Earlier quoted context omitted.

For the first time in my career I'm also feeling cautiously optimistic about the future. I'm one of these people who was absolutely terrible in this low-rate environment. At least I got to learn about some of the reasons why I absolutely suck at it. One of my worst character traits is that I'm missing the hair-trigger opportunist factor (AKA "you've got one shot" factor) and this is precisely one of the traits which…

What are some the skills or things you know that make you successful in this new environment, if I may ask? I think I might be one of those, but I lack the contextual information/knowledge to act on it.

Well I can't be sure I will be successful in this new environment. Surely there's always luck involved. But I suspect that I will benefit from an environment where capital is spent more carefully. As someone who always bootstraps, it's been tough to compete against large amounts of capital. Too much capital flowing into an industry creates competition which drives up advertising CPC and crushes profit margins in that industry... Especially if those well-funded competitors aren't looking to make a profit themselves. If your competitor is willing to blow all their cash on advertising and allow their profit margins to shrink down to 0, you will also be forced to drop your margins down to 0 in order to remain competitive. If you're bootstrapped and rely on profit margins to sustain yourself, you simply cannot stay afloat in such competitive low-margin environment.

With high interest rates, there is an increased incentive for investors to just park their money into savings accounts instead of putting it to work (competing against small businesses) in the markets.

Re: What if your entire worldview was just because of near-zero interest rates?

#284

Post by lettergram »

jocaal wrote: post #123
ihatepython wrote: post #102

Earlier quoted context omitted.

The Fed is one of the most misunderstood institutions. Basically, everything you have said is completely wrong, which makes difficult to write a reply, because where to start? In short, the original design of the Fed was correct, where each branch was independent and could set their own interest rate, and they purchased commercial paper to stimulate the economy. This changed during WWII, where the government mandated…

I may not know everything about how they operate, but I have seen how qualified their leadership is. The fed is usually run by a bunch of phd's so I have come to trust it a bit more than other government institutions.

1. The FED isn’t a government institution. That’s part of the problem.

2. In my opinion, a PhD doesn’t make your more qualified inherently. How often do candidates fail their qualifying exam or defense and never return? (Hint very few).

Take a step back and ask what the alternatives are? Prior to the 3rd central bank of the US the government was effectively fine. But it couldn’t print money, it had to collect it via taxes. This limited taxes and government spending.

Now… it’s basically a constant tax called inflation; much of which we export.

Re: What if your entire worldview was just because of near-zero interest rates?

#285

Post by neilwilson »

chii wrote: post #225
neilwilson wrote: post #204

Earlier quoted context omitted.

"Giving artificial jobs don't differ much from giving people artificially valued money." There's a big difference. It uses up the hours so they can't self consume them. And they are forced to turn up on time, and stay the day - or they don't get paid. Which goes back to the root of our exchange system. We don't really exchange money, that's just a token - we exchange the output of our time, which is finite, and there…

An artificial job does not produce value from which others would benefit. A real job that produces value would not need to have been artificially created!

A contract of employment is a contract for time. Giving up the hours is all that is required.

It's the job of capitalists to extract value from that time. If they do they get paid. If they don't they go bust.

The number of 'artificial jobs' is entirely in the gift of capitalists. If they don't like them, all they have to do to make them go away is hire the people's time and use it better.

If they can't do that in aggregate, then they lose out until they do. That's how the stabilisation works.

Re: What if your entire worldview was just because of near-zero interest rates?

#286

Post by neilwilson »

PeterisP wrote: post #255
neilwilson wrote: post #98

Given that putting interest rates up is an artificial intervention into the market for money, what if your worldview is based around allowing financial institutions to extract rent by taxing people for setting up home? Why is setting the price of money artificially - which gives free government money to financial institutions - better than the alternative: setting the base price of labour by guaranteeing people a job…

I'd rather say that keeping interest rates down required a continuous artificial intervention into the market for money - the current rate rise seems quite fully driven by reasonable market pressure, not by some artificial intervention.

If the central bank doesn't set a rate, then the interbank rate will drift to zero - because money is near costless to produce and no chance of non-payment because there is only one central bank in a currency and central bank money can't go anywhere else.

That doesn't stop the rate for lending to businesses being higher than that because there is a risk of non-payment there. There is more than one commercial bank.

Every form of money has its 'own' rate. There is no One Interest Rate to Rule Them All - contrary to neoliberal myth.

Re: What if your entire worldview was just because of near-zero interest rates?

#287

Post by neilwilson »

ummonk wrote: post #228
neilwilson wrote: post #206

Earlier quoted context omitted.

"That's exactly the point, because it's an attempt to encourage people to save money when they'd rather spend it because inflation is high." Except that can't happen can it. If Loans create deposits, then to get more savings, you need more loans. You can't have one without the other. What they are trying to do its get people to pay off loans. How many people do you know who pay off loans in the middle of an inflation…

No, because bank reserves can go up. And by increasing its interest rates, the Fed reserve is encouraging banks to put more money in reserve accounts.

Bank reserves cannot go up in aggregate unless government spends more than it taxes and doesn't issue bonds to drain those reserves.

Bank reserves are on the asset side of the bank's balance sheet. Deposits are on the liability side.

Re: What if your entire worldview was just because of near-zero interest rates?

#288

Post by boppo1 »

dgellow wrote: post #202
boppo1 wrote: post #201

Can anyone explain to me why we don't have a policy of 'natural' or 'equilibrium' interest rate? As I studied finance in college in the 2010s I was aghast to realize that the US had basically turned into a centrally planned economy, and could not wrap my head around how any serious economist could advocate for the paradigm with a straight face. I'll never forget my freshman year investment analysis professor angrily…

> I'll never forget my freshman year investment analysis professor angrily and incoherently (to us hungover, careless freshmen) ranting about QE and going out for chain-smoking-breaks. It's so clear now. Could you enlighten us? What is so clear?

Asset inflation, erosion of the middle class, rise of unprofitable business getting lots of investment, etc.

Re: What if your entire worldview was just because of near-zero interest rates?

#289

Post by boppo1 »

notahacker wrote: post #246
boppo1 wrote: post #201

Can anyone explain to me why we don't have a policy of 'natural' or 'equilibrium' interest rate? As I studied finance in college in the 2010s I was aghast to realize that the US had basically turned into a centrally planned economy, and could not wrap my head around how any serious economist could advocate for the paradigm with a straight face. I'll never forget my freshman year investment analysis professor angrily…

Because there's no such thing as a 'natural equilibrium' interest rate[1]. The base interest rate is an equilibrium, which regardless of monetary policy regime is influenced by something completely artificial (the quantity of base money in an economy) and lending activity. The Fed deciding to set the quantity of base money added to an economy 'no more ever' or 'x% per year' or 'in proportion to stocks of some shiny m…

I mean, if we didn't interfere with the buying/selling of treasuries, wouldn't that be equilibrium?

Re: What if your entire worldview was just because of near-zero interest rates?

#290

Post by boppo1 »

hdhejenennd wrote: post #221
boppo1 wrote: post #201

Can anyone explain to me why we don't have a policy of 'natural' or 'equilibrium' interest rate? As I studied finance in college in the 2010s I was aghast to realize that the US had basically turned into a centrally planned economy, and could not wrap my head around how any serious economist could advocate for the paradigm with a straight face. I'll never forget my freshman year investment analysis professor angrily…

What would a "natural" interest rate mean to you? No open market operations, or what?

Yes, that. Not sure how the market for FF would work since that's not impacted by OMO, but I'm sure there'd be a way to just 'leave it to the market'.
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