The mortgage bomb looms

[Texsox]

Discussing family finances with a boy scout counselor.. that is just plain creepy, IMO.

 

The counselor we use the most happens to be a Senior VP at a bank here, the other is a CPA with one of the better accounting firms. Still creepy? BSA does not approve merit badge counselors unless they pass a background check and demonstrate knowledge in the area they will be counseling.

 

 

If you have a severe comprehension problem, perhaps.

 

People will still accept the risks. They will believe that promotion will happen. They will believe that interest rates will decline in five years. They will believe their home will appreciate in value at the current rate. They will believe in anything. And some will have a comprehension problem.

[Balta1701]

The counselor we use the most happens to be a Senior VP at a bank here, the other is a CPA with one of the better accounting firms. Still creepy?

Are there any Congressmen involved?

[Queen Prawn]

Brian's cousin has gotten the balloon payment mortgage for each house she and her husband have owned. We thought the first two times made sense, but the last one didn't since they had kids that would be school aged by the time the balloon payment was due.

 

She knows the risks so I guess she knows what she is doing.

 

When we combined our pre-existing loan and construction loan, my cousin (aka loan agent person) walked through it with us even though we already knew we didn't want an ARM. He, too, advised against it but wanted us to know all out options before signing. We got a sweet rate too.

[Steff]

The counselor we use the most happens to be a Senior VP at a bank here, the other is a CPA with one of the better accounting firms. Still creepy?

 

Yes, very creepy. Family finances are family issues and none of anyone's business that doesn't contribute to the paying of the bills or a paid financial advisor who the family seeks for help. This requirement for this merit badge is nothing more than being nosey, IMO.

 

 

 

People will still accept the risks. They will believe that promotion will happen. They will believe that interest rates will decline in five years. They will believe their home will appreciate in value at the current rate. They will believe in anything. And some will have a comprehension problem.

 

 

 

If they believe all the above, then they fall into the comprehension problem range.

[Queen Prawn]

People will still accept the risks. They will believe that promotion will happen. They will believe that interest rates will decline in five years. They will believe their home will appreciate in value at the current rate. They will believe in anything. And some will have a comprehension problem.

 

This is something that Brian and I talk about quite often. Certain people in our lives have chosen to live well outside their means to "keep up with the Jones." As soon as money gets tight, they whine to the Brain who doesn't want to hear it.

 

It's one thing to splurge here and there and another to splurge all the damned time. It surprises me how many people never learned how to live within your means.

[Texsox]

Yes, very creepy. Family finances are family issues and none of anyone's business that doesn't contribute to the paying of the bills or a paid financial advisor who the family seeks for help. This requirement for this merit badge is nothing more than being nosey, IMO.

You are correct, that would be creepy, if it was true.

 

I don't see where they are discussing family finances. Do you mean discussing how to save money for a purchase? They never discuss the family's finances.

 

They counselor talks about various saving vehicles, CDs, passbook accounts, mason jars, etc. I don't see how that is creepy. Where else can a 16 year old talk to a CPA for a couple hours for free?

[Chisoxfn]

People will still accept the risks. They will believe that promotion will happen. They will believe that interest rates will decline in five years. They will believe their home will appreciate in value at the current rate. They will believe in anything. And some will have a comprehension problem.

And in many of those instances they will be right (depending on the area). Will rates decline in 5 years, probably not, will they ever be as low as they were for a while, again probably not. But the vast majority of people in larger cities are not going to stay in the same house for 20 + years. In fact many won't stay in it for more than 5 years so in those instances there are a lot of advantages to go with an arm (lower margin, low start rate, etc).

 

I could really go on and on cause I'm in the vast minority that feels these programs are amazing. If you want to know why real estate has appreciated so much it is in large part due to the fact that loans are much easier to get now than they were 25 years ago. And currently we can say that now far more than ever.

[Steff]

I don't see where they are discussing family finances. Do you mean discussing how to save money for a purchase? They never discuss the family's finances.

 

 

#'s 1and 2 specifically inquire about saving money for the chosen "major expense" and preparing a budget based on expected income. NOYFB, MYOFB, and the ever important, IMO.

 

Let's move on.

 

Where else can a 16 year old talk to a CPA for a couple hours for free?

 

 

I don't think they really care. And I don't think that's a stretch of a guess.

[southsider2k5]

#1) I would hardly call the federal reserve a government program. Institutionally, it has practically nothing to do with the government at all. Its decisions cannot controled by Congress or by the President.

 

#2) You conclusion is eroneous. Government deficits are not a good measuring stick of economic performance. If the government spends less, then the budget will shrink even if tax revenues are the same. In 2005, spending by the Federal government did not grow as much as incoming revenue.... So the deficit shrank. Furthermore (and maybe more imporantly) remember that there is a lag in tax revenue. How the Housing market was in Jan 2005 is not indicative of how it is in December... and certainly not indiciative of how it is now. GDP is a much better indication of an economy's performance. And by all accounts GDP is going to be affected by the housing slump. Don't believe me, then just check this out: Bernanke says that we will see a 1% decline in GDP... which sounds minor, but isit has a massive effect on the US (and world) economcy. http://money.cnn.com/2006/10/04/news/econo...on=money_latest

#2 wasn't claiming to be an indication of economic conditions. Supposedly all of the record revenues coming in are because of the housing boom, which isn't happening anymore, yet revenues are still even exceeding these record expectations. Also I realize that taxes are a lag of up to a fiscal year... if this is the case, why are they still raising expectations for tax revenues in the future, if the still pending impact of the housing market is totally yet to be felt. If we were looking at this impact on the deficit (which is what we were talking about in the first place) we would need to look at total deficit and tax revenues, which is exactly what I did.

 

You know as well as I do that the housing market is a totally different beast from the normal economy, in that the economy in many parts can react vastly more rapidly than the housing market.

 

First, the new housing construction market is always going to be a lagging indicator of the state of the housing market, because housing units do not just pop up overnight. It takes months or years for houses that begin to be constructed to hit the market, and it's not exactly a logical move to begin construction on a house and then stop halfway just because there's a downturn in the market, so the jobs in the construction of housing created during the boom won't just all vanish this month because prices started to go down.

 

Secondly, the housing market can take years to adapt to a downturn in housing prices, because not everyone is interested in selling their house simultaneously. Because of the fact that downturns in the housing market only effect a limited number of people at any given time, the duration of the downturn is going to play a very large role in how big of an impact is has on the economy as a whole. A short correction or a soft-landing will have a much more reduced impact than a long period of stagnation in the housing market, because it would only effect the people who were selling at that specific time.

 

Third, at least thus far, the real estate and housing companies have been taking extraordinary steps to try to make sure they are able to sell the houses they currently have, steps which do not show up in housing prices and which have in fact served to provide some measure of economic stimulus on their own. Things like giving away timeshares and new cars to go along with the purchase of a house at a particular price.

 

In other words, its entirely possible that the economy will weather a temporary downturn in housing prices. But the longer and more extreme it is, the more effect it will have on the economy as a whole.

 

#1. Housing starts are down. There is less construction going on right now. We don't even have to look at a lag, because the numbers tell us it is happening right now.

 

#2. Exsisting home sales are down. Prices are flat at best in most areas, and falling in areas which experienced the biggest booms for the most part. Houses are also taking longer to sell. There is no longer a lag here either. Homes that don't sell, don't realize revenues, which don't generate new sales, which don't generate home improvements etc... It is happening right now... or I guess not happening as the case may be.

 

#3. The situation you are speaking of here is for just new home sales, and only those within preestablished subdivisions. This is a niche market, as the vast majority of home sales are exsisting homes, not brand new construction. Something like this isn't going to serve to artificially hold up home prices to much of an extent.

 

 

 

I could really go on and on cause I'm in the vast minority that feels these programs are amazing. If you want to know why real estate has appreciated so much it is in large part due to the fact that loans are much easier to get now than they were 25 years ago. And currently we can say that now far more than ever.

 

Invest in tulip bulbs lately?

[Texsox]

#'s 1and 2 specifically inquire about saving money for the chosen "major expense" and preparing a budget based on expected income. NOYB, IMO.

 

Let's move on.

 

#1 They discuss how to save. Not well can your family afford that, what does your dad make etc, that would be creepy. Instead they break down the cost and look at the interest rates of CDs, simple savings accounts, and the difference between investing and saving. If you put away this amount for X months you would have this much. If you change the principle, the interest, etc. this is the result. If you borrow the money, via credit cards, etc, the item will now cost this. Never personal family finances. There is no point in that.

 

#2 is the kids allowance and how to budget it. Not the families. So the kid learns how to work with his $5 a week. He learns to keep "books" and track income and expenses. All very good skills. I doubt the counselor really cares about Juan and his weekly allowance, the skills to manage it is what is being taught.

 

They never discuss actual family finances. That would be creepy. I'll move on.

 

Actually the kids to enjoy this merit badge. The counselor takes them (along with a buddy or parent, never one on one) to the executive board room at the bank. Way up at the top. Private elevator. Makes them feel like a big shot. He's very entertaining. Of course YMMV, not every merit badge conselor is that good. Just a great resource I developed.

[Chisoxfn]

#2 wasn't claiming to be an indication of economic conditions. Supposedly all of the record revenues coming in are because of the housing boom, which isn't happening anymore, yet revenues are still even exceeding these record expectations. Also I realize that taxes are a lag of up to a fiscal year... if this is the case, why are they still raising expectations for tax revenues in the future, if the still pending impact of the housing market is totally yet to be felt. If we were looking at this impact on the deficit (which is what we were talking about in the first place) we would need to look at total deficit and tax revenues, which is exactly what I did.

#1. Housing starts are down. There is less construction going on right now. We don't even have to look at a lag, because the numbers tell us it is happening right now.

 

#2. Exsisting home sales are down. Prices are flat at best in most areas, and falling in areas which experienced the biggest booms for the most part. Houses are also taking longer to sell. There is no longer a lag here either. Homes that don't sell, don't realize revenues, which don't generate new sales, which don't generate home improvements etc... It is happening right now... or I guess not happening as the case may be.

 

#3. The situation you are speaking of here is for just new home sales, and only those within preestablished subdivisions. This is a niche market, as the vast majority of home sales are exsisting homes, not brand new construction. Something like this isn't going to serve to artificially hold up home prices to much of an extent.

Invest in tulip bulbs lately?

I'm not saying the mortage industry isn't going to be hurting because I have no doubt people are gonna seriously be upside down because the industry got very lax when it came to qualifying/making loans. But those same Lax standards made anyone that owned real estate in a booming area a lot of money (I just want to remind people of that).

 

One of the goals is to have as many home owners as possible and in a sense the lenders have helped with that. Obviously some people are stupid and maybe it doesn't make sense to go with an arm, but I still find it funny. Insanely low margins (if you have good credit) and a payment well under fixed. I've done all the calculations and if your not planning on holding your home for an extended period of time, it makes a hell of a lot more sense to go arm (becuase of the options you have).

 

If you want to talk about foreclosures, it has jack to do with arm's for the most part and more to do with low start rates, interest only loans (which again can be very very effective, if used properly). Now many of those arm's may go into foreclosure, but I think if you looked at the terms you'd notice that they were neg am arm's and the people just got caught upside down (there own damn fault).

[NorthSideSox72]

#2 wasn't claiming to be an indication of economic conditions. Supposedly all of the record revenues coming in are because of the housing boom, which isn't happening anymore, yet revenues are still even exceeding these record expectations. Also I realize that taxes are a lag of up to a fiscal year... if this is the case, why are they still raising expectations for tax revenues in the future, if the still pending impact of the housing market is totally yet to be felt. If we were looking at this impact on the deficit (which is what we were talking about in the first place) we would need to look at total deficit and tax revenues, which is exactly what I did.

#1. Housing starts are down. There is less construction going on right now. We don't even have to look at a lag, because the numbers tell us it is happening right now.

 

#2. Exsisting home sales are down. Prices are flat at best in most areas, and falling in areas which experienced the biggest booms for the most part. Houses are also taking longer to sell. There is no longer a lag here either. Homes that don't sell, don't realize revenues, which don't generate new sales, which don't generate home improvements etc... It is happening right now... or I guess not happening as the case may be.

 

#3. The situation you are speaking of here is for just new home sales, and only those within preestablished subdivisions. This is a niche market, as the vast majority of home sales are exsisting homes, not brand new construction. Something like this isn't going to serve to artificially hold up home prices to much of an extent.

Invest in tulip bulbs lately?

 

You are still not addressing the financial lag that I was referring to (and I think Balta was as well). It isn't about taxes. The lag is in the fact that if people took out cash or lowered their payments, then the positive net cash going into the economy from those people is spread out over a few years. As the money fades and cannot be replaced like salaries can, then the economy begins to fizzle. Further added to that is the 2 to 5 year window for people falling out of ARM mortgages and selling their homes on the quick, as mentioned before.

 

Those lag factors are just now starting to become relevant, and will increase in their effect in the coming 5 to 10 years.

 

By the way, this timing will be coincidental with the baby boomers selling their family homes at a higher rate, as they enter retirement. Not a great combination for the housing market.

[southsider2k5]

You are still not addressing the financial lag that I was referring to (and I think Balta was as well). It isn't about taxes. The lag is in the fact that if people took out cash or lowered their payments, then the positive net cash going into the economy from those people is spread out over a few years. As the money fades and cannot be replaced like salaries can, then the economy begins to fizzle. Further added to that is the 2 to 5 year window for people falling out of ARM mortgages and selling their homes on the quick, as mentioned before.

 

Those lag factors are just now starting to become relevant, and will increase in their effect in the coming 5 to 10 years.

 

By the way, this timing will be coincidental with the baby boomers selling their family homes at a higher rate, as they enter retirement. Not a great combination for the housing market.

 

It is about taxes, to a large extent, and in a few different ways. Americans have a negative savings rate, which means every dime they take in, goes out the door and then some. This money comes back to the government time and time again in the form of taxes on all sorts of stuff. Whether it is income taxes through jobs created (or lack of revenue because of jobs lost), or sales taxes, income taxes as people make money on home speculation, inheritance taxes as people die rich because of the spiked value of their home, or anything else... the affect on taxes is there. If people are proping up the American economy through home spending to that extent, the economists would not be adding to revenue expectations right now, because even with the slowdown already underway, there would be an effect (ie loss of revenues, not gains) felt now, and even if you want to assume a lag effect, they would reducing revenue expectation, and not expanding them.

[NorthSideSox72]

It is about taxes, to a large extent, and in a few different ways. Americans have a negative savings rate, which means every dime they take in, goes out the door and then some. This money comes back to the government time and time again in the form of taxes on all sorts of stuff. Whether it is income taxes through jobs created (or lack of revenue because of jobs lost), or sales taxes, income taxes as people make money on home speculation, inheritance taxes as people die rich because of the spiked value of their home, or anything else... the affect on taxes is there. If people are proping up the American economy through home spending to that extent, the economists would not be adding to revenue expectations right now, because even with the slowdown already underway, there would be an effect (ie loss of revenues, not gains) felt now, and even if you want to assume a lag effect, they would reducing revenue expectation, and not expanding them.

I do not know what these projections are - I assumed you were referring to revenues from tax receipts, which is not a good economic gauge. If you are saying that overall GDP is going to go up in the next few years, I'd be surprised. That increase in tax revenue could be caused by any number of things, including increase in inheritance taxes due to the baby boomers.

 

My point was and still is, and no one has countered this... the housing boom coming to an end will materially result in a large drop in the amount of cash being put back into the economy that was occurring due to said boom. That will have a significant effect on the economy.

[Balta1701]

You are still not addressing the financial lag that I was referring to (and I think Balta was as well). It isn't about taxes. The lag is in the fact that if people took out cash or lowered their payments, then the positive net cash going into the economy from those people is spread out over a few years. As the money fades and cannot be replaced like salaries can, then the economy begins to fizzle. Further added to that is the 2 to 5 year window for people falling out of ARM mortgages and selling their homes on the quick, as mentioned before.

I think this is what I was trying to say; the element of time which is specifically involved in the housing market more than any other, and that's the point I was trying to make earlier.

 

Yes, Housing starts are down. However, that does not mean that all housing construction work has ceased, nor does that mean that the housing construction market has fully declined to the point where it is in equilibrium with the amount of houses being started right now. This is of course because of the amount of time it takes to complete a house after it is started. Housing starts can decrease at one time and it will take a while for it to wind its way through the economy. I'll give an example from the last month's data:

 

Privately Owned housing starts in August of 06 were 19.8% lower than in August of 05. However, privately owned housing completions in August were only 4.4% lower than in August of 05, because there was still a high level of housing starts until recently. The decrease in housing starts will only truly begin to hit the employment market when the housing completions start catching up with the decrease in housing starts. That 20% decrease in housing starts in August will eventually show up in the number of housing completions, and this will continue to be a drag on the work force in the housing industry over a long time, and the long-term impact has the potential to be much larger than the short term impact.

[Rex Kickass]

#1 They discuss how to save. Not well can your family afford that, what does your dad make etc, that would be creepy. Instead they break down the cost and look at the interest rates of CDs, simple savings accounts, and the difference between investing and saving. If you put away this amount for X months you would have this much. If you change the principle, the interest, etc. this is the result. If you borrow the money, via credit cards, etc, the item will now cost this. Never personal family finances. There is no point in that.

 

#2 is the kids allowance and how to budget it. Not the families. So the kid learns how to work with his $5 a week. He learns to keep "books" and track income and expenses. All very good skills. I doubt the counselor really cares about Juan and his weekly allowance, the skills to manage it is what is being taught.

 

They never discuss actual family finances. That would be creepy. I'll move on.

 

Actually the kids to enjoy this merit badge. The counselor takes them (along with a buddy or parent, never one on one) to the executive board room at the bank. Way up at the top. Private elevator. Makes them feel like a big shot. He's very entertaining. Of course YMMV, not every merit badge conselor is that good. Just a great resource I developed.

 

I got that merit badge. And although the information may not necessarily have stayed with me all the time, I did learn stuff from it. And there was nothing creepy about that merit badge.

[southsider2k5]

Kinda going back to this discussion of tax cuts vs housing boom.... Its an op-ed from WSJ, so it is a little biased, but makes some excellent points. Bold emphasis is mine.

 

The Worker Rally

October 9, 2006; Page A18

 

The Labor Department released its September jobs report on Friday, and some wags are calling it the "whoops" report. The "whoops" is a reference to the upward revision of 810,000 previously undetected jobs that Labor now says were created in the U.S. economy in the 12 months through March 2006.

 

So instead of 5.8 million new jobs over the past three years, the U.S. economy has created 6.6 million. That's a lot more than a rounding error, more than the number of workers in the entire state of New Hampshire. What's going on here?

 

Our hypothesis has been that, due to the changing nature of the U.S. economy, the Labor Department's business establishment survey has been undercounting job creation from small businesses and self-employed entrepreneurs. That job growth has been better captured in Labor's companion household survey, which reported 271,000 new jobs in September after 250,000 new jobs in August, and a very healthy total of 2.54 million new jobs in the past year.

 

The household survey is what is used to determine the unemployment rate, which fell in September to 4.6%, the lowest level in five years. The establishment survey, meanwhile, is used to announce the monthly "new jobs" numbers. Every year the Labor Department revises its job estimates from the previous year, in essence reconciling the figures from the two surveys, and the missing 810,000 jobs was the result through March 2006.

 

Getting out of the statistical weeds, the news here is that the U.S. has a very tight labor market -- which is now translating into significant wage gains. Over the past 12 months wages have climbed by 4%, which is the biggest gain since 2001 and which economist Brian Wesbury points out is higher than the 3.3% average annual wage growth of the last 25 years.

 

Most of the media has ignored all this and instead focused on the disappointing 51,000 "new jobs" number from the establishment survey for September. But even in that survey, the jobs number for August was revised upward by 62,000 and the U.S. jobs machine continues to roll out an average of about 150,000 additional hires each month. Even the loss of residential construction jobs in September, due to the housing market slowdown, was nearly matched by payroll gains in commercial construction.

 

This boom in employment started in August of 2003, roughly coincident with the economy's growth acceleration in the wake of the Bush Administration's 2003 tax cuts on dividends, capital gains and in the top marginal income rate on the highest earners. Yet on the same day that the Labor Department discovered 810,000 new jobs, Nancy Pelosi promised that if she becomes Madam Speaker next year, within 100 hours of taking the gavel the House will vote to repeal those tax cuts and raise the minimum wage. Never underestimate the ways that Washington politicians can do economic harm.

[AbeFroman]

Kinda going back to this discussion of tax cuts vs housing boom.... Its an op-ed from WSJ, so it is a little biased, but makes some excellent points. Bold emphasis is mine.

 

SS2K - you've spent a large portion of this post discussing the time bomb of ARM's. If there has been a housing bubble in the past few years, how would that have affected tax revenue?

 

Presume that many people took equity out of their homes by refinancing while rates were low. Also presume that many sellers made a lot of money on their homes during the price run-up. I think a logical thinking supply-sider would say that tax revenues increased because overall wealth increased as a result of the housing boom.

 

I believe tax cuts help a little... But the gains in tax revenue and better economic performance is a function of low interest rates. I think too much is made of how taxes affect the economy....

[southsider2k5]

SS2K - you've spent a large portion of this post discussing the time bomb of ARM's. If there has been a housing bubble in the past few years, how would that have affected tax revenue?

 

Presume that many people took equity out of their homes by refinancing while rates were low. Also presume that many sellers made a lot of money on their homes during the price run-up. I think a logical thinking supply-sider would say that tax revenues increased because overall wealth increased as a result of the housing boom.

 

I believe tax cuts help a little... But the gains in tax revenue and better economic performance is a function of low interest rates. I think too much is made of how taxes affect the economy....

 

Why would you think that? Reduction of taxes is the most pure injection of cash into the economy possible. At a 100% ratio, all of that money reaches the tax payers. When you start looking at the housing market, only those who have sold a house, or took out a home equity loan feel the effects. If you look at the equity boom of the 90's, only those who owned stocks got to participate in that. If you look at government spending, only the people who either have new government jobs, or are in those particular programs feel the effect, and in the case of government spending, any spending has an element of loss equal to the amount of government ineffeciency related to that particular program. Low interest rates only affect those who have the ability to get a loan. Tax cuts are the only completely fool proof method to put money directly into the pockets of people.

[AbeFroman]

Why would you think that? Reduction of taxes is the most pure injection of cash into the economy possible. At a 100% ratio, all of that money reaches the tax payers. When you start looking at the housing market, only those who have sold a house, or took out a home equity loan feel the effects. If you look at the equity boom of the 90's, only those who owned stocks got to participate in that. If you look at government spending, only the people who either have new government jobs, or are in those particular programs feel the effect, and in the case of government spending, any spending has an element of loss equal to the amount of government ineffeciency related to that particular program. Low interest rates only affect those who have the ability to get a loan. Tax cuts are the only completely fool proof method to put money directly into the pockets of people.

 

Economies are ruled by monetary policy. Interest rates are the only fool proof method of putting money directly into the economy. Taxes, in my mind, have only nominal impact on the economy.

 

Low interest rates affect way more than those who have the ability to get a loan. Low rates make it cheaper for businesses to borrow money. When they can borrow money cheaply, they can expand, hire new workers, develop new markets, innovate, etc. Also, when interest rates are low, investment is pushed to the private sector. Stocks attract new investors because stock performance is substantially better than interest based investments (like T-bills, bonds, etc.). When companies have access to capital, they can expand. This is especially important in America where our position as the global capital center gives us the advantage to pursue other international markets unavailable to those without financing.

 

I believe that lowering taxes can expose an economy to inflation. I believe the "pure injection" of money into the economy translates into higher demand for consumer goods. Some of those consumer goods are foreign (e.g. using tax reductions to upgrade from a ford to a mercedes). For every tax cut dollar, the American economy only receives the percentage that is spent on american goods or benefits american companies. The consumer spending which stays in the U.S. drives up inflation in the short term. If a billion more dollars is available to americans, its foolish to believe that prices won't eventually reflect that as well.

 

I definitely understand supply-side theory that tax cuts produce a trickle down affect... and I agree that it is somwhat helpful. But its not nearly as substanial as Reagan disciples want to believe. The Reagan Tax cuts in 81 and 86 were probably good for America (though the deficits are not good). However, its also worth noting that Paul Volker lowered interest rates a whopping 10% in the early 80's. Volker contained price growth, he spurred investment, and ultimately a huge boom in American Business. He is the uncredited hero in the American economy.

 

George Bush Sr. raised taxes in 1990. Clinton raised taxes in 1993. The result? 9 years of booming economy. No inflation, low unemployment. Budget surpluses. If tax breaks help the economy, then we logically should have seen a bad economy from tax increases. It never happened.

 

So I you ask me how to grow an economy, I'll tell you to use monetary policy. Tax cuts are overrated. The Sweds have a 56% income tax... but they have a very powerful central bank. Somehow, they've prospered. .. and they've grown even faster than us.

[kapkomet]

Economies are ruled by monetary policy. Interest rates are the only fool proof method of putting money directly into the economy. Taxes, in my mind, have only nominal impact on the economy.

 

Low interest rates affect way more than those who have the ability to get a loan. Low rates make it cheaper for businesses to borrow money. When they can borrow money cheaply, they can expand, hire new workers, develop new markets, innovate, etc. Also, when interest rates are low, investment is pushed to the private sector. Stocks attract new investors because stock performance is substantially better than interest based investments (like T-bills, bonds, etc.). When companies have access to capital, they can expand. This is especially important in America where our position as the global capital center gives us the advantage to pursue other international markets unavailable to those without financing.

 

I believe that lowering taxes can expose an economy to inflation. I believe the "pure injection" of money into the economy translates into higher demand for consumer goods. Some of those consumer goods are foreign (e.g. using tax reductions to upgrade from a ford to a mercedes). For every tax cut dollar, the American economy only receives the percentage that is spent on american goods or benefits american companies. The consumer spending which stays in the U.S. drives up inflation in the short term. If a billion more dollars is available to americans, its foolish to believe that prices won't eventually reflect that as well.

 

I definitely understand supply-side theory that tax cuts produce a trickle down affect... and I agree that it is somwhat helpful. But its not nearly as substanial as Reagan disciples want to believe. The Reagan Tax cuts in 81 and 86 were probably good for America (though the deficits are not good). However, its also worth noting that Paul Volker lowered interest rates a whopping 10% in the early 80's. Volker contained price growth, he spurred investment, and ultimately a huge boom in American Business. He is the uncredited hero in the American economy.

 

George Bush Sr. raised taxes in 1990. Clinton raised taxes in 1993. The result? 9 years of booming economy. No inflation, low unemployment. Budget surpluses. If tax breaks help the economy, then we logically should have seen a bad economy from tax increases. It never happened.

 

So I you ask me how to grow an economy, I'll tell you to use monetary policy. Tax cuts are overrated. The Sweds have a 56% income tax... but they have a very powerful central bank. Somehow, they've prospered. .. and they've grown even faster than us.

Abe, I don't have time to respond, but you make some good arguements, and besides, SS probably can answer this better then I. Bush and Clinton did raise taxes, but only incrementally compared to the MUCH higher rates that we had pre-Reagan, and that's why I don't think we saw as much of an effect.

 

Plus, the economy was shifting from a largely manufacturing environment to a services oriented environment (economic engine wise) so there was an influx of cash that probably wouldn't have been there otherwise.

[NUKE_CLEVELAND]

Budget deficits are a problem caused by government spending too much. To say that the tax cuts are causing the deficit is a discredited argument.

 

One of my biggest issues with the Republican leadership in Congress is that they have made no effort whatsoever to rein in spending. The only reason the deficit is falling is that the increase in tax revenues are outpacing the increases in spending. Despite this you still have backwards idiots like Pelosi and Rangel running off at the mouth at how evil the tax cuts are. The only reason these 2 have any credibility is because their partisan class warfare bulls*** resonates well with their core constituencies ( socialists, poor people and anyone else who produces nothing and has their hand out ).

 

The Bush economy has proven for the 3d time ( Kennedy, Reagan and now Bush ) that tax cuts work, yet the left still clings to their marxist, wealth redistribution rhetoric. When will they ever learn?

 

 

 

 

Abe, I don't have time to respond, but you make some good arguements, and besides, SS probably can answer this better then I. Bush and Clinton did raise taxes, but only incrementally compared to the MUCH higher rates that we had pre-Reagan, and that's why I don't think we saw as much of an effect.

 

Plus, the economy was shifting from a largely manufacturing environment to a services oriented environment (economic engine wise) so there was an influx of cash that probably wouldn't have been there otherwise.

 

 

Correct me if Im wrong but wasn't the top marginal tax rate north of 75% still when Carter was in office?

 

Also, if Im not mistaken, the Clinton tax hikes in 1993 only raised the top rate to something like 35%, if memory serves that was a mere 5% hike.

[Rex Kickass]

It was 70%. Although Marginal Tax Rates are misleading, because actual income isn't necessarily taxable income and prior to the 198os tax code reforms, there were a lot more loopholes to reduce taxable income IIRC. It was 35% at the end of Reagan's term.

[NorthSideSox72]

Budget deficits are a problem caused by government spending too much. To say that the tax cuts are causing the deficit is a discredited argument.

 

One of my biggest issues with the Republican leadership in Congress is that they have made no effort whatsoever to rein in spending. The only reason the deficit is falling is that the increase in tax revenues are outpacing the increases in spending. Despite this you still have backwards idiots like Pelosi and Rangel running off at the mouth at how evil the tax cuts are. The only reason these 2 have any credibility is because their partisan class warfare bulls*** resonates well with their core constituencies ( socialists, poor people and anyone else who produces nothing and has their hand out ).

 

The Bush economy has proven for the 3d time ( Kennedy, Reagan and now Bush ) that tax cuts work, yet the left still clings to their marxist, wealth redistribution rhetoric. When will they ever learn?

Correct me if Im wrong but wasn't the top marginal tax rate north of 75% still when Carter was in office?

 

Also, if Im not mistaken, the Clinton tax hikes in 1993 only raised the top rate to something like 35%, if memory serves that was a mere 5% hike.

1. Budget deficits occur when spending outpaces tax income. Therefore, by definition, it is neither caused by tax cuts nor overspending - it is the combination of the two. How can one discredit logic?

 

2. I am not sure where this supposed Marxist rhetoric is coming from... Pelosi just said the other day she wants pay-as-go. I am not sure I believe it will happen, but, the only person spewing rhetoric about wealth redistribution seems to be you.

[AbeFroman]

Nuke, you're a nice guy. I appreciate your enthusiasm... particularly for our beloved white sox. We've gotten into heated arguments about topics here in the filibuster. Sometimes I feel bad about the way i respond to some of your posts. That said, your previous post makes me want to scream.

 

Budget deficits are a problem caused by government spending too much. To say that the tax cuts are causing the deficit is a discredited argument.

 

Its a real easy equation. Tax Revenue - Spending = Deficit/Surplus. When you cut taxes, the government gets less money. If spending is flat (or even cut a little) deficits happen. Its not a discredited argument IN ANY WAY. I'm pretty sure even Reagan would agree with me. Here's a chart of budget deficits in recent american history. http://www.iatse728.org/home/deficitgraph.htm Its from the Congressional Budget office, so I'm not making this up. (I'd post it here, but

 

You'll note that deficits are created when Reagan takes office. Then, when taxes are raised during Bush Senior and Clinton admins, we see surpluses. Then, when Bush Jr. takes office, we have deficits. Its real simple. When you cut taxes the government has less money. When the government has less money, you have deficits.

 

 

One of my biggest issues with the Republican leadership in Congress is that they have made no effort whatsoever to rein in spending. The only reason the deficit is falling is that the increase in tax revenues are outpacing the increases in spending. Despite this you still have backwards idiots like Pelosi and Rangel running off at the mouth at how evil the tax cuts are. The only reason these 2 have any credibility is because their partisan class warfare bulls*** resonates well with their core constituencies ( socialists, poor people and anyone else who produces nothing and has their hand out ).

 

I understand your frustrations with the Republican Congress. Its one thing I agree with you on. If you cut taxes, you should cut spending so that you can have a balanced budget. Otherwise you leave future generations with an enormous burden of paying off debt. Hey... i guess there's a war to pay for. Thats definitely accounted for a whole bunch of spending. And pork is a bi-partisan problem in and of itself.

 

I'll get to your comment on socialism below.

 

The Bush economy has proven for the 3d time ( Kennedy, Reagan and now Bush ) that tax cuts work, yet the left still clings to their marxist, wealth redistribution rhetoric. When will they ever learn?

Correct me if Im wrong but wasn't the top marginal tax rate north of 75% still when Carter was in office?

 

This bothers me most. Theres a lot of democrats here. Who's a marxist? Who's a socialist? This is nuts. This is basically name-calling. Nobody here is calling for the massive redistribution of wealth so that everyone is equal. This is NOT the soviet union. The percentage of democrats who are marxists has to be less than a tiny fraction of a percent.

 

Also, if Im not mistaken, the Clinton tax hikes in 1993 only raised the top rate to something like 35%, if memory serves that was a mere 5% hike.

 

George Bush tax cuts were 3% for all but the highest tax bracket. It was 4.6% cut for the highest bracket. (Source Wikipedia:http://en.wikipedia.org/wiki/2001_Tax_Act) So if you're willing to call a 5% hike "mere," then Bush's cuts were even more slight.

 

I think if you are a believer in the theory that taxes drive an economy, the 90's should give you a wake up call. We raised taxes twice... and the economy still grew.

 

For my real feeling son this, please read my previous post to the very respectable SS2K. Cutting taxes help.... a tiny bit. But not that much. If you look at when our economy has grown, it ALWAYS corresponds with interest rate control. Bush tax cuts have proven anything.

 

Nuke, I don't expect you to agree with me. I doubt this post, or a million more just like it, would change your mind. To be honest, I'm just hopeful that some of the others on this board take a second to read it and maybe it makes some sense to them.

 

It was 70%. Although Marginal Tax Rates are misleading, because actual income isn't necessarily taxable income and prior to the 198os tax code reforms, there were a lot more loopholes to reduce taxable income IIRC. It was 35% at the end of Reagan's term.

 

Rex, you're right. Its true that the top tax was 70% but only a tiny few paid it. Tax shelters were rampant and the system was broken. I credit Reagan a great deal for cleaning it all up (Still doesn't change the fact that my kids are going to be paying for his budget management in 2060.)