[AtHeartEngineer]

I honestly don't know how we've been in a bull market this long. Trump's been turning a lot of economic knobs and the market hasn't really responded drastically like it has in the past. When it does crash, it's going to crash hard. Just my opinion.

[AznHisoka]

Why would it crash hard unless interest rates go up by a significant amount? The financial industry is filled with tons of money that is looking for returns - it's just not going not sit in a bank and let inflation rot its value. If there's a downturn, it will be very temporary as Wall Street is so anxious/trigger happy. They'll immediately get greedy and buy any dips.

Everyday, there is new money flowing into the system automatically, without any conscious decision. It's coming from 401Ks, IRAs, etc. That money needs to be put into action.

[roenxi]

> Why would it crash hard unless interest rates go up by a significant amount?

The 2008-era crisis in theory should have resulted in a whole heap of financial managers taking their companies bankrupt/to a place of horrid returns and being blacklisted from ever managing a lemonade stand. But they were bailed out, so now they got promotions instead for record returns or whatever it is they've been doing since. Since the finance industry has substantial control over what everyone else does, that leaks out into the real world.

So, the intuition is that the system is being corrupted and people with no ability to make good decisions are being put in charge. At some point that should boil over. You can fit math models to that and guess which metric will blow out first.

I'm not sure how much I buy that argument; people have an incredible ability to put up with suboptimal circumstances. But when you put idiots in charge there is always a risk that they do something spectacularly stupid so my personal guess is at some point the pensions crack and trigger something. It is a spectator sport in a way. Maybe America is productive enough that they can cope with a few bad eggs in the financial markets. Maybe the taxpayers can shoulder all burdens!

POSTSCRIPT

Just for fun, veering off topic.

https://en.wikipedia.org/wiki/List_of_bank_mergers_in_the_Un...

My interpretation is that something went wrong with bank regulation in the late 70s or early 80s. That is when the too-big-to-fail snowball started rolling; since then the stresses in the system seem to have been building. 2008 was a nasty blow.

[supergauntlet]

>My interpretation is that something went wrong with bank regulation in the late 70s or early 80s. That is when the too-big-to-fail snowball started rolling; since then the stresses in the system seem to have been building. 2008 was a nasty blow.

Yes, it's called "Ronald Wilson Reagan" and was worsened when Glass Steagall was repealed by Clinton in a remarkably short-sighted move. Another poster already mentioned the Savings and Loan crisis that happened in the 90s that took taxpayers for a ride to the tune of 130 billion dollars (around 250 billion dollars today). We should have learned from it but for some reason (probably greed) we made the same mistakes again with Glass-Steagall and then not even 10 years after repealing that we reaped our rewards: subprime mortgages falling apart and taxpayers footing the bill while thousands were foreclosed on. The same is happening with auto loans right now.

For some reason, if you are a white collar criminal, the rules don't apply to you. No matter how much you fuck up and how much illegal shit you do, none of it sticks. Look at Boeing. 346 people died, but I honestly bet the worst thing that happens to any of the managers that OK'd that plane is they lose their jobs; realistically they probably won't even lose that. Maybe not get a bonus.

The common thread here is not just with deregulation being seen as the magical cure all that fixes all our problems (because as it turns out, sometimes we have regulations for very good reasons!) but that there are simply no consequences for doing bad things if you are stealing from or hurting the average American taxpayer. The only difference between Bernie Madoff and the bankers in 2008 that grifted us all is that Madoff made the mistake of trying to steal from the rich.

[AnimalMuppet]

What particular grounds do you have for blaming Reagan?

[edoceo]

This one? https://en.m.wikipedia.org/wiki/Savings_and_loan_crisis

[AnimalMuppet]

IIRC, that was when banks first were allowed to operate across state lines. Before that you might have "national associations" (banks that were connected to banks in other states), but the banks in each state were separate corporations.

[mtberatwork]

> something went wrong with bank regulation in the late 70s or early 80s.

I'm assuming you are referring to the repeal of Glass-Steagall?

[ovi256]

That was in 1999.

[mtberatwork]

Ahh, thanks! You are correct. I had thought that some initial provisions were repealed in the 80s.

[stillbourne]

Did you even bother reading the article? It basically states that we haven't learned out lessons from 2008. Was the 2008 crash because of fed interest rates? No, it was because of poorly designed high-interest junk bonds. The article says the same behavior that caused the market to tank in 2008 in happening again. Furthermore, if we take a look at past crashes we can see that there has been quite a few that were caused by the same issue, the early 80s Savings and Loan Crisis, the 89 bust of the high-yield bond market, the Dot Com Bubble of the early 2000s, and the Financial crisis of 2008 we all caused by Junk Bonds NOT the Fed.

Additionally the idea that new money flowing into the system from 401Ks, IRAs, etc is extremely naive. These are long term investment instruments sure but as they are generally not actively managed they are not immune to fluctuations in the market and the market is not immune to people who have the misfortune to retiring in an economic bust. I have observed this in the second person as my grandfather was well to do before 2008, did not listen to my advice to allocate his retirement money to a guaranteed interest plan until after the market hit bottom (which was the wrong time to do that) he basically lost 500k.

[maimeowmeow]

My take is that financial crises only happen on years that contain 8, 9, 0, but you should be more careful if the year ends in those numbers.

Looks like 2020 is going to be an unfortunant year.

[zzzzzzzza]

the big reason why the economy cyles is due to speculative cycle in land values, the booms/busts that aren't, are more like tulip bulb manias than real recessions/depressions

you could fix it by raising land value taxes high enough to extract all land rent and thus almost eliminating land speculation. At the same time you could get rid of most of our other taxes like capital gains and income taxes.

[AnimalMuppet]

> the big reason why the economy cyles is due to speculative cycle in land values

Baloney. The last one was, true. The Great Depression wasn't land, though - it was the stock market.

And rents these days don't primarily come from land. Your land value tax fits the economy of a few centuries ago, where the income primarily came from land, but it doesn't fit today, where the income primarily comes from other kinds of assets. (The value of the land it occupies is not how Amazon makes money.) All your land tax would do is penalize land compared to other asset classes. And, since you are wrong in your first point (that economic cycles are driven by speculation in land), you would do this for no good reason. That's probably not going to end well.

[TheOtherHobbes]

The current default isn't going to end well either.

The obvious solution is a wealth tax instead of income taxes. Take back the money that's been privatised, end the pointless and inefficient boom and bust hamster wheel, and spend bigly on productive social investment - education, gamechanger R&D, small business development, aerospace, robotics, AI, renewables, and other physical infrastructure.

Why isn't this happening already?

[AnimalMuppet]

I think that a wealth (or capital) tax makes more sense than a land tax.

Why hasn't it happened yet? I can see two reasons. Pick which one you think is more believable.

Reason 1: The rich don't like the idea of a wealth tax, and the rich have a lot of political clout.

Reason 2: The consequences could be rather negative. If the US creates a wealth tax, you'd see an exodus of assets and rich people. It would become a less attractive location for businesses (including startups). Would that be a net win for the US?

[zzzzzzzza]

bullshit. a big part of the assets the stock market is valuing is land/property. Banks lend out... mortgages... mcdonalds has... stores. There was totally a land value bubble preceding the great depression. Right now we have a land value bubble AND a nifty fifty style stock market bubble... but compare the dot com bust to the great recession. One was way more devastating than the other. Right now, tech companies have very high pe ratios... BUT if and when those profits actually materialize, they will be capitalized into land values.

Even 10000 years from now, when civilization consists of a bunch of satellites orbiting the sun in a dyson swarm, an analogous orbit value tax will be the most logical source of tax revenue for a far future government. Land is always a prequisite for doing business, and absent an LVT, private sector actors will benefit from the network effects inherent therein, instead of the community that that value was actually generated by.

What's your alternative to a LVT, a sales tax? A vat? Income tax? Deadweight loss, deadweight loss, deadweight loss.

[turk73]

Don't lose sight of the fact that in the case of 2008, we had absolute fraud taking place in both the mortgage bond market (abetted by the ratings agencies) as well as in the banks through fraudulent loan originations. Not only were there no-doc mortgages (NINJA loans), but also just outright fake people in the end. I don't think the same level of fraud is going on right now, okay maybe in cryptos...

Also, your grandfather shouldn't have had all his money in equities. He should have retired and lived out of a savings account while the markets rebounded then re-balanced into bonds/CDs as the market bounced back. I got whacked in '08, but then made it all back and more. 2 yrs. of living expenses in cash would have prevented losing 500K.

[lambdasquirrel]

Every dollar in issues debt is effectively multiplied. When you turn back the knobs even a little bit, you’d be surprised by the amount of contraction. The “dodgy” money being described is more or less the froth that ends up at the very top.

The danger is that with such a long bull market, only God knows how many non-survivable companies there are beyond the Ubers and Lyfts.

What’s unsustainable will have to end eventually. Pushing money into the system doesn’t make the economy magically better by itself.

[tobltobs]

> It's coming from 401Ks, IRAs, etc. That money needs to be put into action.

Not too long anymore then we will reach Peak 401K.

[benj111]

You could say this at any time.

If anything the danger is increased because there isn't room to cut rates because they are already low.

It isn't long since organisations were happy to pay central banks to have their money stored safely.

[westpfelia]

Unless the fed raises interest rates by 15% in one day raising interest rates dont cause crashes. Interest rates are raised partly in effort to stem the damage caused by economic downturns.

[michaelt]

Same as any crash: If people think the market is going to do worse than a bank account in the near term, they sell. If enough people agree, it's a self-fulfilling prophecy.

[stillbourne]

Market Crashes are not that simple. More often than not they are a form of liquidity crisis on debt instruments that are poorly designed and lack the advertised returns after long term investment. Typically these bonds have low security collateral and high risk. In 2008 this was related to the subprime mortgage bubble, the coming bubble is sometimes referred to as the everything bubble. This will probably be escalated by the Trump Tax Cuts as many in the middle class ended up paying more in the last year than in previous years due to punitive removal of certain deductions designed to punish blue states.

[javagram]

> as many in the middle class ended up paying more in the last year than in previous years due to punitive removal of certain deductions designed to punish blue states.

This is basically a politically-motivated myth. https://www.nytimes.com/2019/04/14/business/economy/income-t...

80-90% of households making above $50k/year got a tax cut, yes, including residents of blue states that have their SALT capped.

[astura]

I actually believe it's both.

I believe that the cap on deductions was a deliberate attack on blue states; I also believe a lot of people who received a tax cut believe that their taxes had risen.

[stillbourne]

Most of my co-workers who own a home paid additional taxes than we did last year. For a politically motivated myth it sure looks like $1.5k more than paid last year.

[javagram]

Feels like an anecdote v data situation. Are you sure your coworkers are even right in believing they paid more?

The article I linked shows vast number of middle class people somehow ended up under the impression they paid more even when they actually had paid less.

[chrshawkes]

Not trying to be political with my comment but I also own a home and claim more than the standard deduction and got crushed in taxes this year compared to last. Something changed, and at the end, TurboTax said I owed a lot more this year than last and my income was relatively unchanged. That was a shock and now I'm preparing to tighten the belt for the rest of the year. I make substantially more than the Average American (most engineers do) and I paid a ton of taxes last year, I didn't expect to be saddled with a ton more at filing time.