I am seriously confused. Most intelligent people I meet are aware of the "debt economy" aka debt supercycle aka shop-till-you-are-maxed-out phenomenon being caused by ultra low interest rates. Surely this theory is not just held by zerohedge readers any more and by normal people.
Once consumers are maxed out, how the heck will they spend in the future? Surely the fed knows this and has a viable plan. Else, they are kicking bigger problems to the future, aren't they?
By normal people? I think you are greatly overestimating people's knowledge of economic theory. Most probably only know of trickle down because it's mentioned in the news.
There was a recent article by NYT about the Chase Sapphire Reserve credit card. Look at the comment section, most don't know how to do cost benefit analysis. All they saw was a $450 annual fee. A good amount still talk about paying with cash only.
This doesn't mean I'm much better off. When you mentioned debt super cycles I have no idea what you mean. I'm only starting to get into economic theories. I'm 27, can be considered upper middle income, and given millennial income calculators in top 1% of earnings (not saying much since most people in the valley can get that, ~$70k income for that level). These theories does not have a perceived effect on people's day to day lives. So a lot don't know about them or don't care. Example, every few weeks I see an article in the front page about negotiating salary. This isn't a gauge of knowledge, but of interest. Everyone goes through negotiation situation, value is obvious, more people learn about it.
I read the article [1] because I was dubious about the potential cost/benefit given that I pay zero dollars in interest on my cards (I pay the statement balance every month), and I found that the benefit is for rewards programs.
My understanding is that rewards programs are an arms race: the merchants cover the extra rewards amount. That means that they're bundling the cost of rewards into their products anyhow and charging you for the "pleasure" of getting your money back. If you can get in on it before the costs rise to the full amount of the reward, then other people subsidize your reward by purchasing the cost-adjusted product without getting rewards. I'll pass on paying $450 to further that, no cost-benefit required.
Irony that you did cost benefit on a much broader scale (merchants and consumers as a whole) instead of a personal finance level. And you are right about merchants paying more. Didn't make sense when I was running a store until I read a paper on reward points and transaction fees.
This type of subsidizing happens around us, one that comes to mind is taxes. 401k and other tax shelters. People that are taking the greatest advantage of these have money to spare, and read up on the advantages (or hired someone that has).
Also, since you pay off your statement every month, reward cards make a lot of sense. Haven't seen one that requires a revolving balance. For me it's about optimizing returns on spend I already have.
He's trying to measure himself against the average single person his age. Of course, more realistically according to the Bay Area metric, he is below the household poverty line.
Mixed up my numbers, top 1% for age group ~106k. Bay Area metric I make more than median household, which is scary since that means the average single income family in the Bay Area would be barely scraping by (not hard to believe).
Just because you make more than median doesn't mean you aren't still below the household poverty line. Once you grasp that, you'll begin to understand the completely upside down economy of the Bay Area. Palo Alto considers below 250k/y household low enough to qualify for subsidized housing. The top 1% make $450k and the top 1% in San Francisco make nearly $1m. You are in a crazy context you aren't yet fully realizing.
Not sure what craziness you think I don't perceive. My initial comment is to demonstrate how a person in my generation that is doing relatively well financially, are not versed in the economic concepts the parent comment provided (debt cycle). That it is not normal for us to know such concepts.
Prior to the global financial crisis, Neoclassical Economists, i.e. the ones running the US Fed, would not even consider the level of private debt as a significant macroeconomic metric. That's changed slightly, but not really. They still delusionally believe that private debt doesn't matter UNLESS there's an exogenous shock which forces interest rates to the zero lower bound. They seem unwilling to accept the reality that rising private debt drives macroeconomic demand and that stabilizing or reducing private debt triggers an endogenous crisis a la Hyman Minsky's financial instability hypothesis.
What's wrong with a debt economy? It allows startups to overthrow incumbents with relative ease, and without it you get an economy like Germany's, dominated by conservative companies founded 150+ years ago. There are certainly advantages to the German system, but it has plenty of disadvantages too.
E.g. you give a bank $1, it creates a liability for $1 on its balance sheet, and it also goes out and lends that cash to someone (allowing it to create debt somewhere else).
The question you should be asking is not the total level of debt, but which groups in the economy are indebted. I agree that consumers as a whole should have positive savings.
Beyond that, I said "and" not "or". Interest rates and savings should be organically tied together. They should signal each other. Nowadays, they do not.
No doubt we all, including central banks, would be happier if rates were at 5% instead of 0%, but then we'd have much worse mass unemployment as an aftereffect of the financial crisis.
The 0% bound you see today is the lesser of two evils.
Yet it's the same Deplorables that want to LGBT down by any and all means (especially the T). Sorry if I don't support those folks but until they back something like ENDA then I'm not going to vote for them in any possible world.
dubious