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But the savings rate won't fall because those receiving the bulk of a tax cut (the wealthy) are chiefly savers, while taxes are just the reflux of spending that is spent on immediately, and in addition, the fiscal balance is usually in deficit. The government hardly ever saves.
Tax cuts generate fiscal deficits and it’s the top end that purchase the tsys.
All if nothing else changes, the tax cut increases the deficit that that is saved in tsys.
IF the tax cut is "paid for" with spending cuts, then some increase in luxury consumption may occur but a significant part will be saved in risker assets, driving up asset values. Good for equities. Probably not much of an increase in firm investment.
Tom - Don't know if you saw this but it looks like the disconnect is becoming harder to ignore. Bogus employment numbers are at record highs with nary a sign of inflation.
Fed's Hot-Or-Not Confusion on Economy to Shape Rate-Hike Debate
Go back and look at Brian's SFC response functions he diagramed a while back ... you get an initial impulse down but then a response back towards the zero line ... the shape of that response function is a function of the tax rate and savings rate...
So depending on those 2 rates you can get back towards to balance either faster or slower...
Tom - Don't know if you saw this but it looks like the disconnect is becoming harder to ignore. Bogus employment numbers are at record highs with nary a sign of inflation.
Busy today so I didn't see it.
Looks like there is something wrong with either the data of the theory. More probably the theory.
An economy is made up of many factors and often they are inversely related so there are tradeoffs affecting social and political aspects as well as economic.
Actually there are not that many smaller houses since builders stopped building them decades ago when it became more profitable to build larger ones. The remaining smaller houses are in demand and the price has been bid up.
14 comments:
Article out of paradigm...
All Trump is claiming is the savings rate is going to fall due to lowering the tax rate...
But the savings rate won't fall because those receiving the bulk of a tax cut (the wealthy) are chiefly savers, while taxes are just the reflux of spending that is spent on immediately, and in addition, the fiscal balance is usually in deficit. The government hardly ever saves.
Tax cuts generate fiscal deficits and it’s the top end that purchase the tsys.
All if nothing else changes, the tax cut increases the deficit that that is saved in tsys.
IF the tax cut is "paid for" with spending cuts, then some increase in luxury consumption may occur but a significant part will be saved in risker assets, driving up asset values. Good for equities. Probably not much of an increase in firm investment.
Tom - Don't know if you saw this but it looks like the disconnect is becoming harder to ignore. Bogus employment numbers are at record highs with nary a sign of inflation.
Fed's Hot-Or-Not Confusion on Economy to Shape Rate-Hike Debate
https://www.bloomberg.com/news/articles/2017-05-24/fed-s-hot-or-not-confusion-on-economy-to-shape-rate-hike-debate
ERISA savings has caps Tom and is based on gross pay...
So if they get a tax rate cut and gross pay stays the same then they keep saving the same % of pay but have more to spend as the taxes go down...
Go back and look at Brian's SFC response functions he diagramed a while back ... you get an initial impulse down but then a response back towards the zero line ... the shape of that response function is a function of the tax rate and savings rate...
So depending on those 2 rates you can get back towards to balance either faster or slower...
We need them to get the rates back up to 4-5% pronto... flows are starting to roll over...
Tom - Don't know if you saw this but it looks like the disconnect is becoming harder to ignore. Bogus employment numbers are at record highs with nary a sign of inflation.
Busy today so I didn't see it.
Looks like there is something wrong with either the data of the theory. More probably the theory.
Seeing functions the clouds.
iWe need them to get the rates back up to 4-5% pronto... flows are starting to roll over...
I don't see any scenario on the horizon that would get the Fed to do that.
They'll probably be happy with 2%. They just want some wiggle room to lower rates when the next recession hits.
Next time they're going to need more than a couple of points of wiggle room.
The Fed has to be careful raising rates because it directly affects investment — read the housing market.
Every quarter point increase in mortgage rates excludes more people being able to afford the increased monthly nut.
There is more to the economy than real estate...
Buy a smaller house then....
There is more to the economy than real estate...
An economy is made up of many factors and often they are inversely related so there are tradeoffs affecting social and political aspects as well as economic.
Buy a smaller house then....
Actually there are not that many smaller houses since builders stopped building them decades ago when it became more profitable to build larger ones. The remaining smaller houses are in demand and the price has been bid up.
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