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On January 18 2021 15:21 RvB wrote:Show nested quote +On January 15 2021 06:23 FiWiFaKi wrote:
Oof, watching BB run off today after I scalped a few hundred on in a few weeks earlier lol. Out of the 3 I was considering, purchased the worst one.
How do you guys feel about interest rates? JPow and Canada is assuring interest rates will stay low - as long as inflation does.
But money formula is MV = PT, and we've been raising money supply, 120Bil/month bond buyback, and now stimulus bills. This was offset by a lower velocity of money due to uncertain circumstances to keep P, price level reasonably stable. As soon as the velocity starts increasing with the recovery, will result in higher inflation, which will result in higher interest rates.
I'm of the school of economics that high interests rates are the biggest risk to cascading the economy into a recession. Most growth companies are extended pretty far, and that makes up a larger part of the S&P500 than ever before. It's hard to say. I've heard warnings of inflation for more than a decade now. Central Banks will probably accept a little higher inflation than usual as well to compensate for the low inflation now. So we'll see low interest rates for a while. We'll see what happens.
I don't see how you concluded higher inflation = lower interest rates. Real interest rates don't change much nowadays, r_nominal = r_real + inflation, Fischer effect.
You raise inflation, youll put upwards pressure on nominal rates to match within a couple months, nominal interests aren't sticky, they'll react very quickly. The central banks would struggle to keep that rate, because every company issuing bonds would have to react, because nobody would buy their bonds.
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United Kingdom13775 Posts
On January 20 2021 06:19 FiWiFaKi wrote:Show nested quote +On January 18 2021 15:21 RvB wrote:On January 15 2021 06:23 FiWiFaKi wrote:
Oof, watching BB run off today after I scalped a few hundred on in a few weeks earlier lol. Out of the 3 I was considering, purchased the worst one.
How do you guys feel about interest rates? JPow and Canada is assuring interest rates will stay low - as long as inflation does.
But money formula is MV = PT, and we've been raising money supply, 120Bil/month bond buyback, and now stimulus bills. This was offset by a lower velocity of money due to uncertain circumstances to keep P, price level reasonably stable. As soon as the velocity starts increasing with the recovery, will result in higher inflation, which will result in higher interest rates.
I'm of the school of economics that high interests rates are the biggest risk to cascading the economy into a recession. Most growth companies are extended pretty far, and that makes up a larger part of the S&P500 than ever before. It's hard to say. I've heard warnings of inflation for more than a decade now. Central Banks will probably accept a little higher inflation than usual as well to compensate for the low inflation now. So we'll see low interest rates for a while. We'll see what happens. I don't see how you concluded higher inflation = lower interest rates. Real interest rates don't change much nowadays, r_nominal = r_real + inflation, Fischer effect. You raise inflation, youll put upwards pressure on nominal rates to match within a couple months, nominal interests aren't sticky, they'll react very quickly. The central banks would struggle to keep that rate, because every company issuing bonds would have to react, because nobody would buy their bonds.
Seems like an odd conflation of several things:
1. Fisher reflects a compensation for inflation of a rate of interest for some use of your money. You can invest your money into something and it'll notionally earn you some returns, then you adjust for inflation.
2. Central banks target, by using the money printer more or less aggressively, a rate of interest for borrowing money, generally on some low-cost low-duration instrument (e.g. federal funds rate for overnight bank borrowing), which generally has a knock-on effect for affecting the price of borrowing throughout the economy.
3. Inflation is impacted by (2), with a lower targeted interest rate leading to higher inflation. More money being printed to support the low interest rates in (2) tends to bid up prices, hence inflation.
The interest rate from (2) is not the interest rate in (1), and the effect of (2) on (1) is very roundabout because it goes through (3). Almost always, when people talk about central banks and "keeping interest rates at X" they refer to (2), not to (1).
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On January 20 2021 10:28 LegalLord wrote:Show nested quote +On January 20 2021 06:19 FiWiFaKi wrote:On January 18 2021 15:21 RvB wrote:On January 15 2021 06:23 FiWiFaKi wrote:
Oof, watching BB run off today after I scalped a few hundred on in a few weeks earlier lol. Out of the 3 I was considering, purchased the worst one.
How do you guys feel about interest rates? JPow and Canada is assuring interest rates will stay low - as long as inflation does.
But money formula is MV = PT, and we've been raising money supply, 120Bil/month bond buyback, and now stimulus bills. This was offset by a lower velocity of money due to uncertain circumstances to keep P, price level reasonably stable. As soon as the velocity starts increasing with the recovery, will result in higher inflation, which will result in higher interest rates.
I'm of the school of economics that high interests rates are the biggest risk to cascading the economy into a recession. Most growth companies are extended pretty far, and that makes up a larger part of the S&P500 than ever before. It's hard to say. I've heard warnings of inflation for more than a decade now. Central Banks will probably accept a little higher inflation than usual as well to compensate for the low inflation now. So we'll see low interest rates for a while. We'll see what happens. I don't see how you concluded higher inflation = lower interest rates. Real interest rates don't change much nowadays, r_nominal = r_real + inflation, Fischer effect. You raise inflation, youll put upwards pressure on nominal rates to match within a couple months, nominal interests aren't sticky, they'll react very quickly. The central banks would struggle to keep that rate, because every company issuing bonds would have to react, because nobody would buy their bonds. Seems like an odd conflation of several things: 1. Fisher reflects a compensation for inflation of a rate of interest for some use of your money. You can invest your money into something and it'll notionally earn you some returns, then you adjust for inflation. 2. Central banks target, by using the money printer more or less aggressively, a rate of interest for borrowing money, generally on some low-cost low-duration instrument (e.g. federal funds rate for overnight bank borrowing), which generally has a knock-on effect for affecting the price of borrowing throughout the economy. 3. Inflation is impacted by (2), with a lower targeted interest rate leading to higher inflation. More money being printed to support the low interest rates in (2) tends to bid up prices, hence inflation. The interest rate from (2) is not the interest rate in (1), and the effect of (2) on (1) is very roundabout because it goes through (3). Almost always, when people talk about central banks and "keeping interest rates at X" they refer to (2), not to (1).
If you google image inflation and interest rate historic graph, you'll see a strong positive correlation between them.
Your number (2) point is an outdated theory, because people have access to more information. It works on a theory of weeks, a couple months max.
Medium to long term what happens is that, bank has an inflation target, which means it adjusts interest rates to match it. That's Bank of Canada's monetary policy, one of the two fundamental pillars (second being stable employment).
Nominal interest rate targets are absurd, what would happen is that you'd print more money to allow low interest rates according to what you mentioned. A few months go by, and people see that inflation is 20%, and bond interest rates are 1%. Nobody is stupid enough to invest money at a negative - 19% interest rate, so they'll buy assets, gold, bitcoin, etc. Anyone who wants to borrow money doesn't have a way to get it - except the central bank printer.
So now, either the bank keeps printing money to fulfill everyone's loan requirements, which will spin into some runaway Zimbabwe shit, or they limit the monetary policy, and economy comes to a screeching halt because nobody will lend money (unless its at a few percent above inflation).
Real interest rate is determined by peoples time value of money, and has minor changes as views of society change, but largely remains constant. Nominal interest rates respond to inflation, albeit with a little lag.
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United Kingdom13775 Posts
Again, you're conflating two completely different things that are both called "interest rates" to make a really strange point. The rates that central banks can "set" (or more accurately set a target for) are a step removed from inflation, which are further a step removed from "real interest rates" in the equation you're trying to plug these things into. And in that light the whole point about "faster access to information" seems like a non sequitur.
To avoid needless generalities, let's talk about the US Fed as our central bank of choice. It conducts monetary policy first and foremost by setting a target for the federal funds rate, the overnight rate of banks borrowing money from other banks, and then either adding or reducing the money supply to reach that target. That's what happens when "the Fed sets interest rates" as most people would refer to it, and that's not a theory - that's literally what they do. Worth noting that with QE and two major recessions they've started to use more and more levers other than the federal funds rate, but that's the one that matters most right now.
These rates have an effect on the cost of borrowing in the economy at large, most cleanly in instruments such as US treasuries but certainly well beyond that. There's a goal to affect targets like inflation, but the Fed can only indirectly control things like that. And of course the rate of inflation affects "real" rates of return on investments per your equation.
The real question that matters here is, how does the Fed changing the federal funds rate affect inflation? Historically it's been a generally inverse relationship (contrary to what your comment on "if you search it here's what you'll see" would imply), but the period past the year 2000 has certainly been fairly strange in that regard. Less strange, though, if you notice that the money pump has inflated asset prices rather than "core" inflation.
Feel free to go nuts on the theory-oh for the impact on changing the fed funds rate ("setting interest rates") on inflation, because that's where all that belongs. Don't be conflating interest rates that are directly controlled by the central bank with interest rates that are impacted downstream, though. Your Fisher equation deals entirely with the downstream variety.
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LL is right. What you mean is the neutral rate of interest not the real rate of interest. Real rate is simply nominal rate - inflation. What matters for monetary policy is the neutral rate. The neutral rate is the interest rate at full employment and stable inflation. The central bank sets rates either lower to stimulate the economy or higher to cool it down. What happens when the CB lowers the interest rate is that lending goes up which increases the money supply. If we take the formula of the last page M * V = P * Q you can see how a lower rate increases the left side of the equation (assuming velocity stays the same) which also means the right side has to increase. So basically the central bank is targetting an increase in the money supply which corresponds to the increase in real expenditures + the inflation target. Which means that a higher inflation target will lead to lower interest rates.
For anyone not familiair with the formula M * V = P * Q, this is what it stands for:
M = Nominal money supply
V = velocity of money
P = price level
Q = index of real expenditures
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On January 20 2021 13:10 FiWiFaKi wrote:Show nested quote +On January 20 2021 10:28 LegalLord wrote:On January 20 2021 06:19 FiWiFaKi wrote:On January 18 2021 15:21 RvB wrote:On January 15 2021 06:23 FiWiFaKi wrote:
Oof, watching BB run off today after I scalped a few hundred on in a few weeks earlier lol. Out of the 3 I was considering, purchased the worst one.
How do you guys feel about interest rates? JPow and Canada is assuring interest rates will stay low - as long as inflation does.
But money formula is MV = PT, and we've been raising money supply, 120Bil/month bond buyback, and now stimulus bills. This was offset by a lower velocity of money due to uncertain circumstances to keep P, price level reasonably stable. As soon as the velocity starts increasing with the recovery, will result in higher inflation, which will result in higher interest rates.
I'm of the school of economics that high interests rates are the biggest risk to cascading the economy into a recession. Most growth companies are extended pretty far, and that makes up a larger part of the S&P500 than ever before. It's hard to say. I've heard warnings of inflation for more than a decade now. Central Banks will probably accept a little higher inflation than usual as well to compensate for the low inflation now. So we'll see low interest rates for a while. We'll see what happens. I don't see how you concluded higher inflation = lower interest rates. Real interest rates don't change much nowadays, r_nominal = r_real + inflation, Fischer effect. You raise inflation, youll put upwards pressure on nominal rates to match within a couple months, nominal interests aren't sticky, they'll react very quickly. The central banks would struggle to keep that rate, because every company issuing bonds would have to react, because nobody would buy their bonds. Seems like an odd conflation of several things: 1. Fisher reflects a compensation for inflation of a rate of interest for some use of your money. You can invest your money into something and it'll notionally earn you some returns, then you adjust for inflation. 2. Central banks target, by using the money printer more or less aggressively, a rate of interest for borrowing money, generally on some low-cost low-duration instrument (e.g. federal funds rate for overnight bank borrowing), which generally has a knock-on effect for affecting the price of borrowing throughout the economy. 3. Inflation is impacted by (2), with a lower targeted interest rate leading to higher inflation. More money being printed to support the low interest rates in (2) tends to bid up prices, hence inflation. The interest rate from (2) is not the interest rate in (1), and the effect of (2) on (1) is very roundabout because it goes through (3). Almost always, when people talk about central banks and "keeping interest rates at X" they refer to (2), not to (1). If you google image inflation and interest rate historic graph, you'll see a strong positive correlation between them. Your number (2) point is an outdated theory, because people have access to more information. It works on a theory of weeks, a couple months max. Medium to long term what happens is that, bank has an inflation target, which means it adjusts interest rates to match it. That's Bank of Canada's monetary policy, one of the two fundamental pillars (second being stable employment). Nominal interest rate targets are absurd, what would happen is that you'd print more money to allow low interest rates according to what you mentioned. A few months go by, and people see that inflation is 20%, and bond interest rates are 1%. Nobody is stupid enough to invest money at a negative - 19% interest rate, so they'll buy assets, gold, bitcoin, etc. Anyone who wants to borrow money doesn't have a way to get it - except the central bank printer.So now, either the bank keeps printing money to fulfill everyone's loan requirements, which will spin into some runaway Zimbabwe shit, or they limit the monetary policy, and economy comes to a screeching halt because nobody will lend money (unless its at a few percent above inflation). Real interest rate is determined by peoples time value of money, and has minor changes as views of society change, but largely remains constant. Nominal interest rates respond to inflation, albeit with a little lag.
Isn't the bolded part quite descriptive of current situation? The inflation isn't in the real economy (so consumption goods) however, but in financial markets. Years of QE and low rates have driven bond returns down and risky assets (stocks, derivatives etc) are reaching mad highs despite very low growth in the real economy. Instead of bonds investors go into real estate or gold for the low risk assets.
Bond markets won't collapse because there are a ton of investors that are either required to keep certain portion in government bonds or something equivalent, or just prefer to hold low risk assets despite getting very low returns. Also the fact that the inflation happens almost exclusively inside the financial markets instead of being consumer inflation makes it so that for example pension funds can happily keep their bond portfolios, they're still making money, just a lot less that investors with higher risk tolerance do.
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New US treasury secretary Janet Yellen is now openly discussing taxes on 'Unrealized capital gains'.So when a stock price goes up you need to pay tax even if you don't sell?
https://www.reuters.com/article/us-usa-biden-yellen-idUSKBN29O1WX
She raised eyebrows of some senators and Wall Street when she said that Treasury would consider the possibility of taxing unrealized capital gains - through a "mark-to-market" mechanism - as well as other approaches to boost revenues.
Create asset inflation and then punish people who wisely put their money into appreciating assets like stocks or cryptocurrency before they even realise the gain by selling? Good luck.
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United States42014 Posts
On January 22 2021 13:12 iPlaY.NettleS wrote:New US treasury secretary Janet Yellen is now openly discussing taxes on 'Unrealized capital gains'.So when a stock price goes up you need to pay tax even if you don't sell? https://www.reuters.com/article/us-usa-biden-yellen-idUSKBN29O1WXShow nested quote +She raised eyebrows of some senators and Wall Street when she said that Treasury would consider the possibility of taxing unrealized capital gains - through a "mark-to-market" mechanism - as well as other approaches to boost revenues. Create asset inflation and then punish people who wisely put their money into appreciating assets like stocks or cryptocurrency before they even realise the gain by selling? Good luck.
This is a good thing. Unrealized gains are gains.
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Adds too much complexity.
What if you made good gains on a company which went bankrupt shortly after you paid this new tax? Would you get a refund?
How do you calculate unrealised capital gain on assets like Bitcoin which fluctuate 10% + - per day?
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United States24579 Posts
On January 22 2021 13:38 iPlaY.NettleS wrote:
Adds too much complexity.
What if you made good gains on a company which went bankrupt shortly after you paid this new tax? Would you get a refund?
How do you calculate unrealised capital gain on assets like Bitcoin which fluctuate 10% + - per day?
I haven't researched the issue and there are several complexities including some you alluded to. Regarding paying taxes on unrealized gains shortly before an up and coming company suddenly goes bankrupt, I'd think you could then write off those losses whether realized or unrealized. I'm not sure if I like changing the tax code to include unrealized gains, but it at least makes some sense if similar rules apply for losses.
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United States42014 Posts
On January 22 2021 13:38 iPlaY.NettleS wrote:
Adds too much complexity.
What if you made good gains on a company which went bankrupt shortly after you paid this new tax? Would you get a refund?
How do you calculate unrealised capital gain on assets like Bitcoin which fluctuate 10% + - per day?
You would get a refund, yes. That’s how it already works for corporations. Loss carrybacks against taxes paid on prior year profits.
The complexity is all handled by software these days. Most people don’t invest significant amounts in assets that fluctuate 10% per day but it doesn’t really matter because the tax is calculated annually.
The main impact is that the super rich (multiple billions rich) who currently defer almost all of their income as appreciated assets with unrealized gains would have to pay tax. That’s a good thing. It’s a tax on Musk and Bezos, not on regular folks. Regular people get wages, dividends, and interest income. They don’t defer billions in stock appreciation because (1) they don’t have billions and (2) if they had billions they’d liquidate it to buy their parents a nice house or whatever. The impact on regular folks would be minimal.
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On January 22 2021 13:24 KwarK wrote:Show nested quote +On January 22 2021 13:12 iPlaY.NettleS wrote:New US treasury secretary Janet Yellen is now openly discussing taxes on 'Unrealized capital gains'.So when a stock price goes up you need to pay tax even if you don't sell? https://www.reuters.com/article/us-usa-biden-yellen-idUSKBN29O1WXShe raised eyebrows of some senators and Wall Street when she said that Treasury would consider the possibility of taxing unrealized capital gains - through a "mark-to-market" mechanism - as well as other approaches to boost revenues. Create asset inflation and then punish people who wisely put their money into appreciating assets like stocks or cryptocurrency before they even realise the gain by selling? Good luck. This is a good thing. Unrealized gains are gains.
Isn't "unrealized gains" a wealth tax (as opposed to income tax) and therefore unconstitutional? Should people pay taxes on their house value going up?
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On January 23 2021 04:23 GoTuNk! wrote:Show nested quote +On January 22 2021 13:24 KwarK wrote:On January 22 2021 13:12 iPlaY.NettleS wrote:New US treasury secretary Janet Yellen is now openly discussing taxes on 'Unrealized capital gains'.So when a stock price goes up you need to pay tax even if you don't sell? https://www.reuters.com/article/us-usa-biden-yellen-idUSKBN29O1WXShe raised eyebrows of some senators and Wall Street when she said that Treasury would consider the possibility of taxing unrealized capital gains - through a "mark-to-market" mechanism - as well as other approaches to boost revenues. Create asset inflation and then punish people who wisely put their money into appreciating assets like stocks or cryptocurrency before they even realise the gain by selling? Good luck. This is a good thing. Unrealized gains are gains. Isn't "unrealized gains" a wealth tax (as opposed to income tax) and therefore unconstitutional? Should people pay taxes on their house value going up?
Not necessarily, no, and no, but see CorsairHero's post below.
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On January 23 2021 04:23 GoTuNk! wrote:Show nested quote +On January 22 2021 13:24 KwarK wrote:On January 22 2021 13:12 iPlaY.NettleS wrote:New US treasury secretary Janet Yellen is now openly discussing taxes on 'Unrealized capital gains'.So when a stock price goes up you need to pay tax even if you don't sell? https://www.reuters.com/article/us-usa-biden-yellen-idUSKBN29O1WXShe raised eyebrows of some senators and Wall Street when she said that Treasury would consider the possibility of taxing unrealized capital gains - through a "mark-to-market" mechanism - as well as other approaches to boost revenues. Create asset inflation and then punish people who wisely put their money into appreciating assets like stocks or cryptocurrency before they even realise the gain by selling? Good luck. This is a good thing. Unrealized gains are gains. Should people pay taxes on their house value going up?
It's called property tax which is tied to the assessed value of the property.
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On January 22 2021 13:12 iPlaY.NettleS wrote:New US treasury secretary Janet Yellen is now openly discussing taxes on 'Unrealized capital gains'.So when a stock price goes up you need to pay tax even if you don't sell? https://www.reuters.com/article/us-usa-biden-yellen-idUSKBN29O1WXShow nested quote +She raised eyebrows of some senators and Wall Street when she said that Treasury would consider the possibility of taxing unrealized capital gains - through a "mark-to-market" mechanism - as well as other approaches to boost revenues. Create asset inflation and then punish people who wisely put their money into appreciating assets like stocks or cryptocurrency before they even realise the gain by selling? Good luck.
It's not punishing people who put money into stocks. It's actually, in some ways, leveling out the playing field between mutual funds and stocks / ETFs. If you've ever owned a mutual fund in a non-tax-deferred account, you would already have experienced this exact situation. In other words, the incentive application of this change is asking the question: Should we direct the marginal investor more toward mutual funds instead of ETFs / Single Stocks? Arguably, yes, and the late Jack Bogle would certainly have supported this shift.
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On January 22 2021 14:19 KwarK wrote:Show nested quote +On January 22 2021 13:38 iPlaY.NettleS wrote:
Adds too much complexity.
What if you made good gains on a company which went bankrupt shortly after you paid this new tax? Would you get a refund?
How do you calculate unrealised capital gain on assets like Bitcoin which fluctuate 10% + - per day? You would get a refund, yes. That’s how it already works for corporations. Loss carrybacks against taxes paid on prior year profits. The complexity is all handled by software these days. Most people don’t invest significant amounts in assets that fluctuate 10% per day but it doesn’t really matter because the tax is calculated annually. The main impact is that the super rich (multiple billions rich) who currently defer almost all of their income as appreciated assets with unrealized gains would have to pay tax. That’s a good thing. It’s a tax on Musk and Bezos, not on regular folks. Regular people get wages, dividends, and interest income. They don’t defer billions in stock appreciation because (1) they don’t have billions and (2) if they had billions they’d liquidate it to buy their parents a nice house or whatever. The impact on regular folks would be minimal.
Regular people may not have the funds to pay an unrealised capital gain.Its forcing them to sell.Unless the proposal only applies to people earning a lot in the first place.
Talking about my local market here but it's probably the same on wall street, what I would change before any unrecognised gain tax is introduce a small transaction tax and a further tax disincentive for selling within one month to slow down High frequency trading algos and speculative day traders that distort the market.
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United States24579 Posts
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United States42014 Posts
On January 23 2021 06:59 iPlaY.NettleS wrote:Show nested quote +On January 22 2021 14:19 KwarK wrote:On January 22 2021 13:38 iPlaY.NettleS wrote:
Adds too much complexity.
What if you made good gains on a company which went bankrupt shortly after you paid this new tax? Would you get a refund?
How do you calculate unrealised capital gain on assets like Bitcoin which fluctuate 10% + - per day? You would get a refund, yes. That’s how it already works for corporations. Loss carrybacks against taxes paid on prior year profits. The complexity is all handled by software these days. Most people don’t invest significant amounts in assets that fluctuate 10% per day but it doesn’t really matter because the tax is calculated annually. The main impact is that the super rich (multiple billions rich) who currently defer almost all of their income as appreciated assets with unrealized gains would have to pay tax. That’s a good thing. It’s a tax on Musk and Bezos, not on regular folks. Regular people get wages, dividends, and interest income. They don’t defer billions in stock appreciation because (1) they don’t have billions and (2) if they had billions they’d liquidate it to buy their parents a nice house or whatever. The impact on regular folks would be minimal. Regular people may not have the funds to pay an unrealised capital gain.Its forcing them to sell.Unless the proposal only applies to people earning a lot in the first place. Talking about my local market here but it's probably the same on wall street, what I would change before any unrecognised gain tax is introduce a small transaction tax and a further tax disincentive for selling within one month to slow down High frequency trading algos and speculative day traders that distort the market.
Then make it a tax on unrealized gains in tradeable securities over a million. The point isn't to hurt workers who happen to own some stocks, it's to tax people who only own stocks who are currently taxed at a much lower rate than regular people. It makes no sense that earning a 100k at your job is taxed at 30% but earning a billion dollars by having other people work at a company you inherited is taxed at 20% and can be deferred indefinitely.
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United States42014 Posts
On January 23 2021 08:33 RowdierBob wrote:
Soooo, GME eh? :D
![[image loading]](https://i.imgur.com/wCV7skg.png)
Roth so all gains would have been tax free.
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EPT
