General Economic/Finance Discussion

randomwalk

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Apr 1, 2017
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229
I thought it would be interesting to have a thread for people to post about general economic/financial developments and trends which may affect our everyday life and the health of the economy, but are maybe not worth starting their own thread over. I would like this thread to remain relatively apolitical as opposed to a lot of the usual comments such as "X is great for the economy, growth is Y etc.".

For example, with both real and nominal interest rates at very low rates, and having been on a downward trajectory over the past 30 years, there are two main theories main theories which look to explain this. While one of these theories looks at financial cyclical factors, another looks at structural factors which cause the supply of savings to exceed the demand for investment, with this excess savings having a negative impact on growth and inflation.
One argument within the structural theory is that ageing demographics act to reduce the natural interest rate. For example higher old-age dependency ratios result in more savings for old age (and lower consumption), and an increasing proportion of elderly people reduces the working age population lowering the real rate due to the higher capital intensity.
This has been talked about relatively widely, from the Fed to the FT, with there being a general consensus that we may be reaching the bottom with the trend inverting.

However, a recent ECB study using projections for dependency ratio's by the EC, suggested that demographic pressures will continue to exert downward pressure on interest rates until at least 2025.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3009653

What are people's opinion on this, both its validity and impact? I personally always quite liked this explanation and think there is a lot of validity to it.
 


shiel

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Joined
Feb 14, 2011
Messages
17,465
I thought it would be interesting to have a thread for people to post about general economic/financial developments and trends which may affect our everyday life and the health of the economy, but are maybe not worth starting their own thread over. I would like this thread to remain relatively apolitical as opposed to a lot of the usual comments such as "X is great for the economy, growth is Y etc.".

For example, with both real and nominal interest rates at very low rates, and having been on a downward trajectory over the past 30 years, there are two main theories main theories which look to explain this. While one of these theories looks at financial cyclical factors, another looks at structural factors which cause the supply of savings to exceed the demand for investment, with this excess savings having a negative impact on growth and inflation.
One argument within the structural theory is that ageing demographics act to reduce the natural interest rate. For example higher old-age dependency ratios result in more savings for old age (and lower consumption), and an increasing proportion of elderly people reduces the working age population lowering the real rate due to the higher capital intensity.
This has been talked about relatively widely, from the Fed to the FT, with there being a general consensus that we may be reaching the bottom with the trend inverting.

However, a recent ECB study using projections for dependency ratio's by the EC, suggested that demographic pressures will continue to exert downward pressure on interest rates until at least 2025.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3009653

What are people's opinion on this, both its validity and impact? I personally always quite liked this explanation and think there is a lot of validity to it.
Good OP.

But a question is that the issue that caused the problems of the pre-2009 period and that for example bankrupt this country?

Is that the issue that will determine the future?

Have the political issues of populism and racism not be more influential in determining future change?
 

Analyzer

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Feb 14, 2011
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45,623
I suppose the biggest difference between 2008 and 2018, is the scale of public debt.

Every policy has amounted to more tax, more control, and more debt. More state control, and intervention. The institutional state effectively positioned itself as the controlling entity of everything in Ireland, and then proceeded to moralize, on the basis of "Big Brother" in Brussels, being behind it.

There has been a monopolization of authority, power, wealth, and morality. Effectively, slightly more dictatorial.

In return there were new favourites, new pretences, and new winners.

The entire debacle was eventually turned into another power trip for the institutional state. And there was a complete elimination of the concept of moral hazard.

In Iceland, moral hazard as a concept was addressed. In Ireland, moral hazard was eliminated from the vocabulary.

Even David Drumm avoided prison.

And even the three tax non domicile media oligarch got debt write downs. Something which the

The institutional state has got larger, on the presumption of a set of declarations, and the idea that those running the state know best. Incidentally the same institutional state was euphoric going into the previous crisis.

The state drove itself into insolvency on a "binge of socialism for the rich" in the aftermath of the banking and real estate crash. Those who were running the state, and influencing policy making, then took the bankers that they bailed out, for a public flogging. The institutional state, and the media followed this up by flogging the rest of us ever since, and telling is that it was great for all of us.

The entire thing has been proven to be highly superficial and rather dishonest.

The same idiots are still running AIB/BoI/the Media/the accontancy profession/the auditors/The finanical regulator, the central bank, etc....

All that happened was a re-ponzification, with the PAYE taxpayer being stuck with the bill, and the largesse continuing in the professional circles, the banks, and the media. The same people that cheerled the bertie binge, that were gobsmacked when it fell apart, who took ownership of the narrative after screwing up, and who have kept control of the entire system, are STILL in control.

The result - another mess will come about.

This time it will be different. The State will go bankrupt a second time.

Bear in mind that Bank of Ireland stayed solvent under the regime of both Sterling and the Punt, for two centuries. That included the Napoleonic wars, numerous famines, economic depressions, and what not else. And then in what was a ponzi boom, under the ECB, and three state institions (the DoF, the IFRSA, and the CBoI) it went to the wall, along with all the others under Trichet's ECB.
 
Last edited:

Spurius P Albus

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Feb 8, 2016
Messages
404
There was a time when interest rates rose as inflation increased. The authorities hiked
interest rates to reduce borrowing and contain demand for goods and services and ease
inflationary pressures. Inflation has been low ( low single digits) in most places for two decades or more which goes a long way to explain why interest rates have been low .

Leaving aside the financial crash , the authorities have been much more adept at keeping
inflation low while at the same time ensuring decent economic growth and avoiding boom/ bust cycles.

Of course economists like to talk about real rather than nominal interest rates. And maybe the OP’s hypothesis is a factor in how these have moved over the decades . More likely a contributory factor in the long term trend than in short term movements.
 

hammer

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Jul 6, 2009
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58,180
Has any financial body or economic think tank done any work on the potential affect on mortgage holders etc when ECB rates start to increase ?

Say at 1% at 2020
1.5% 2022
2% 2025
etc....
 

gerhard dengler

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Joined
Feb 3, 2011
Messages
46,739
I thought it would be interesting to have a thread for people to post about general economic/financial developments and trends which may affect our everyday life and the health of the economy, but are maybe not worth starting their own thread over. I would like this thread to remain relatively apolitical as opposed to a lot of the usual comments such as "X is great for the economy, growth is Y etc.".

For example, with both real and nominal interest rates at very low rates, and having been on a downward trajectory over the past 30 years, there are two main theories main theories which look to explain this. While one of these theories looks at financial cyclical factors, another looks at structural factors which cause the supply of savings to exceed the demand for investment, with this excess savings having a negative impact on growth and inflation.
One argument within the structural theory is that ageing demographics act to reduce the natural interest rate. For example higher old-age dependency ratios result in more savings for old age (and lower consumption), and an increasing proportion of elderly people reduces the working age population lowering the real rate due to the higher capital intensity.
This has been talked about relatively widely, from the Fed to the FT, with there being a general consensus that we may be reaching the bottom with the trend inverting.

However, a recent ECB study using projections for dependency ratio's by the EC, suggested that demographic pressures will continue to exert downward pressure on interest rates until at least 2025.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3009653

What are people's opinion on this, both its validity and impact? I personally always quite liked this explanation and think there is a lot of validity to it.
It would appear from a lot of commentary across a lot of financial/economic sites, that the 20-30 year old are now more in debt than 20-30 year old of previous generations.

Many have to take on large loans to get third level education, so if they do secure a job after college they are already in debt.
If they are trying to repay their debt, they have limited amounts of income to spend or to save.
If they don't repay their debt, someone else carries the cost of their defaulting (usually their parents).

In earlier times, people acquired debt to buy an apartment or a house. At least in those circumstances if their debt became too much of a burden, they could hand back the apartment or house and clear the amount owed.
People who are in debt for college fees have nothing to trade to exchange for their debt.

Debt has a pernicious effect. And at a given level it's perniciousness erodes individuals, economies and societies.
 

randomwalk

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Joined
Apr 1, 2017
Messages
229
Of course economists like to talk about real rather than nominal interest rates. And maybe the OP’s hypothesis is a factor in how these have moved over the decades . More likely a contributory factor in the long term trend than in short term movements.
Yes, the OP refers to structural trends reducing the natural interest rate which in turn reduce nominal and real rates.
 

shiel

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Joined
Feb 14, 2011
Messages
17,465
Those who were running the state, and influencing policy making, then took the bankers that they bailed out, for a public flogging. The institutional state, and the media followed this up by flogging the rest of us ever since, and telling is that it was great for all of us.

The entire thing has been proven to be highly superficial and rather dishonest.

The same idiots are still running AIB/BoI/the Media/the accontancy profession/the auditors/The finanical regulator, the central bank, etc....

The same people that cheerled the bertie binge, that were gobsmacked when it fell apart, who took ownership of the narrative after screwing up, and who have kept control of the entire system, are STILL in control.
Very well said.

The people whose decisions bankrupt the country and those who cheer led them in the pre-2009 period are now blaming everyone else for the consequences.
 

Johnny

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Joined
Apr 29, 2004
Messages
1,215
A (possibly blindingly obvious) question for the financially savvy among you:

I currently pay 3.7% Standard Variable Rate interest on my mortgage with the EBS. A fairly high rate, but I won't switch due to squeezing the last out of my Tax Relief at Source.

The EBS have offered me a 1, 2 or 3 year fixed are of 3.15%. Am I missing something here? I've only ever seen fixed rates higher than the SVR. Should I pile in on this or is there some hidden catch?
 

crossman

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Joined
Feb 16, 2011
Messages
1,615
A (possibly blindingly obvious) question for the financially savvy among you:

I currently pay 3.7% Standard Variable Rate interest on my mortgage with the EBS. A fairly high rate, but I won't switch due to squeezing the last out of my Tax Relief at Source.

The EBS have offered me a 1, 2 or 3 year fixed are of 3.15%. Am I missing something here? I've only ever seen fixed rates higher than the SVR. Should I pile in on this or is there some hidden catch?
I think they are trying to stop you switching. Try to bargain them down to a lower fixed.
 

HarshBuzz

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Joined
Feb 28, 2008
Messages
11,815
A (possibly blindingly obvious) question for the financially savvy among you:

I currently pay 3.7% Standard Variable Rate interest on my mortgage with the EBS. A fairly high rate, but I won't switch due to squeezing the last out of my Tax Relief at Source.

The EBS have offered me a 1, 2 or 3 year fixed are of 3.15%. Am I missing something here? I've only ever seen fixed rates higher than the SVR. Should I pile in on this or is there some hidden catch?
All you are giving up is flexibility.

If you are fairly certain you won't be moving house in the next three years, then it seems like a no-brainer to fix.
 


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